A near perfect reversal

After Friday's sell-off in an "all down" day we look to have our confirmation continued by the opposite occurring. By having a down day and an up day in your portfolio you can better see what asset classes, and what market factors, are moving your portfolio. Looking at what moved the markets up and how that resulted in gainers in your portfolio (and then again in the opposite direction) to see if the market is confirming your theory or there are other factors at play outside your current understanding.

​Friday was a near perfect up day for the US Divergence play in the Inflation space. The dollar rose to the yen while bonds, commodities, and stocks declined. Today started off mixed with the yen up, bond yields up (prices down) and stocks up. Brainard then spoke and came out dovish which the market (at least half of it) didn't expect. Markets quickly came back into line with stocks continuing the rally, the dollar continuing the weakening and a sharp reversal in the short end of the bond curve. Commodities  also came back from their lows making the latter half of the day a 'perfect up' day in terms of the Divergence theory. 

No one likes red in their account (unless you are trading in China) but having a good confirmation of being perfectly right and perfectly wrong lets you know that the theory  and your asset selection is in line with the events you are looking to play. If you do not have perfect up and down days it helps you look at how you can adjust. For example if you were short 30yr treasuries Friday you made money along side the rest of the market but you would have been slightly up as well today. This could be from the inflation expectations that lower rates for longer will have in the future. Either way this play might not be the best for the US divergence trade as other factors are affecting the price movement (inflation expectations in the longer run).