Take a Long, Hard Look at the Bond Contract - TheStreet

Forrest Hump (or the Maypole?)

JACKSON HOLE, Wyo. -- This is the game plan we presented on the first day of the year.

(a) Average-strong employment report this week.

(b) Average-strong-to-way-strong retail report in 10 days.

(c) Way strong employment report in a month.

A meaningful bond rally? Eventually. Here? No. Not yet.

OK. Listen up.

We

nailed (a). We

nailed (b). We

will nail (c) on Friday.

And now we are in a way nice position to begin to think seriously about maybe buying some bonds in a meaningful kind of way.

The Thinking

Today we will be

handed the fourth tightening of the current cycle.

The 1994 cycle consisted of seven hikes. The bond contract began to rally on No. 6. It was well on its way by No. 7.

And the technicals are now suggesting that things could play out similarly this time.

The Game Plan

What you will want to do here will depend on who you are.

If you're butt-rich?

Or less than butt but very strong-stomached?

You will want to begin getting into the

contract right now. When it drops 9 measly ticks? Get in and buy. When it plunges another point? Take some more.

Consider that you'll be out only about 4 points or so even if the thing gets back down to the low we saw on Jan. 18 (and no more than 6 points, say, at most).

And the upside from there will more than pay for that.

If you like playing the wiggles?

Go ahead and play them. There's plenty of room on both sides of the contract for everyone. Big numbers and such will (as always) create nice shorting opportunities; signs of slowing will bring in nibblers.

And do keep this in mind. Many market participants will pooh-pooh upblips on thinking that it's stupid to put on any bullish trade at all in the face of more rate hikes to come.

That there makes for juicy trading.

If you're everyone else?

Wait about a month and let's see where things stand then.

Epilogue

Things have been the

same for a long time; now there exist divergences. Gaming them is terribly tricky and most messy.

What appears above is opinion. It is also a very dynamic work in progress.

I am not responsible for anything that happens as a result of you acting on what you read here. If you make money? Great. That's all you. If you lose money? Too bad. Waaa. Waaa.

Also.

I am deeply indebted to three bond guys -- Jim Grauer (whose work you can always find

here), one who asks to not be named, and one I won't name -- for being so generous with their help. I want to take this opportunity to thank them.

All three would tell you that the things I present to all of you in this space are every bit as valuable to them as their technical work is to me.

And that's complete horse*^!%.

Those guys do the really tough part.

I get to just sit here and tell stupid stories.

Side Dish

Consider a game in which Jack is given $10 and then required to offer some portion of it to Diane. Diane can either accept the proposal, in which case she gets what's offered and he gets the rest, or reject it, in which case both of them get nothing.

You're Diane.

Jack offers you a dime.

What do you do?

Accept or reject?

A dime is better than nil. Take it.

One percent of the total? Screw Jack.

PS The answer was

Fatboy Slim

and a copy of

London 0 Hull 4

went out to reader Cohen.