The Treasury Steps In, and I Ring the Register
I reduced three biotech winners, and not because I think they are going down.
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Investors were caught by surprise on Wednesday morning by news that starting Sept. 9, the U.S. Treasury will increase liquidity-support buybacks for 10-20-year and 20-30-year bonds from a $2 billion maximum to at least $4 billion per operation.
This move is obviously in response to the new multi-year lows that have recently hit iShares 20+ Treasury Bond Fund (TLT) and other long-dated bonds. Who needs the Fed to cut rates when Treasury Sec. Bessent will do essentially the same thing by buying back bonds that it previously issued?
TLT is up sharply on the news, and that is giving a bid to equities as well. Breadth is robust at 64% positive, but the Nasdaq 100 (QQQ) is down 0.3% while small caps are up 0.7%.
The bearish spin is that this move by the Treasury Department is not a vote of confidence in the economy but an indication of some panic about interest rates. The market will be the arbiter of this and right now the equity reaction is fairly tepid in view of the news.
This complicates trading a bit, but I’m maintaining my cautious approach and have no interest in chasing strength in individual stocks. I’ll be looking for entries but will be patient and incremental.
The Same Method in Reverse
On Tuesday, I wrote about how I am stalking Amazon (AMZN) for a trade over the next few months. The method there is not one purchase at one price. It is a continuous series of small buys and sells, and the point of running it that way is to never be positioned where a pullback becomes a problem that pushes me to run for safety. If a decline is a problem, the position was too big or my entries were poor.
This morning I want to discuss the same method working from the other direction. I reduced three biotechnology names I have written about often. Xeris Biopharma (XERS), Candel Therapeutics (CADL), and Cullinan Therapeutics (CGEM) are all near new highs and acting well. I still own all three.
I am not reducing, because I think these stocks are going down. I have no idea what they do next week and neither does anybody else. I am reducing, because I have some size and I want to potentially increase those positions even more. These three names have already made nice moves and ringing the register is satisfying.
But the important issue is that the next pullback in a name I like is a better place to own size than a new high is, and the only way to buy that pullback without flinching is to have the cash already sitting there. Trimming into strength is how you pay for it. I give up a little of what has worked to buy the ability to be even more aggressive when it stops working and resets.
These sales may turn out to be badly timed. All three could run another 20% from here and I would not be surprised. That does not bother me, and if it did, I would be running the wrong method. The approach does not ask any single sale to be well timed. It asks that I always be positioned to buy weakness rather than dread it. Getting that right over a hundred decisions matters more than getting any one of them right.
Look at your best-performing positions and ask what you would do if they fell 15% next month. If the honest answer is that you would be stuck watching, you are already too big, and selling a piece into this strength costs you far less than finding out the hard way.
That is how I’m trading today. If the market rolls over and goes back down I’ll be happy. If it keeps on running I’ll still have plenty of long exposure. One thing I’m not doing is messing around with shorts. That is too much work for too little return.
At the time of publication, DePorre was long AMZN, XERS, CADL, CGEM.
