Bonds Context
• March P.C.E came in at 3.5%. More importantly, market expectations around inflation are no longer centered around disinflation. If anything, they are starting to drift higher.
• F.E.D spot rate at 3.5%/3.75%. With inflation at these levels, rate cuts are effectively off the table. The market is even starting to price in the possibility of further hikes.
Under these dynamics, negative real rates are just around the corner.
It is not surprising to see a broad exodus from the bond space, particularly within Junk Bonds. Activity (price x volume) doubled, while the evolution of returns between 4W and 1W collapsed. This asset has now entered the distribution quadrant.
The move reflects the market’s perception of risk. Beyond the return/inflation equation, there is also a clear derisking component. Other bond categories contracted. Junk Bonds were outright liquidated. More importantly, the emergence of weekly volume was clearly seller-driven, which also speaks to the market’s psychology toward risk.
Naturally, the counterpart to this process is the U.S. dollar — the mandatory stop during periods of transition.
Equities
Selective activity is returning. U.S. Equities experienced experienced higher activity
The fact that returns turned negative suggests this flow was predominantly seller-driven. Another signal of the market’s current psychology toward risk.
Growth (QQQ) declined in both activity and returns. This is contraction, not distribution. A true distribution phase would have implied rising activity, not falling participation.
Characteristics of these flows
On the weekly time frame (first column), volume increased across almost every category, with High Grade being the only exception. U.S. Equities experienced a strong rise in volume relative to the monthly window, but as we already saw, this activity failed to accumulate returns. On the contrary, it was predominantly seller-driven flow, something that becomes very clear in the following heat map.
Over the last week, returns across all categories declined. When coordinated with the rise in volume, these numbers confirm that the flow was predominantly seller-driven.
Volatility
The structure compressed across all categories. It was already compressed on the monthly time frame, and compressed even further on the weekly window.
Scenario Description
This is a mixed environment, characterized by:
- A search for yield — or more precisely, an escape from negative real yields — without capital finding a clear destination.
- The natural parking place remains the U.S. dollar and Money Markets, as long as the PCE < F.E.D Spot Rate relationship holds. This dynamic is becoming increasingly evident.
- At the same time, the market is also experiencing a derisking process visible across both Bonds and Equities.
- The clearest evidence is that the volume entering during the week was predominantly seller-driven in both categories.
Observation
SPY is effectively walking on air. The market continues grinding higher primarily due to derivatives market mechanics (options), which are increasingly dominating spot market behavior.
Trading
Let’s move into the intermarket structure to look for additional confirmation signals and potential vehicles for execution.
To understand how little volume SPY actually traded this week, we can compare it against sector-level volume, where several sectors are running at two standard deviations or more relative to SPY’s activity.
What this ultimately shows is simple: SPY itself traded with virtually no real volume support.
The Trigger
For those who have been following us for some time, this chart will not come as a surprise. It is the foundational pillar we use to validate — or invalidate — our macro thesis that a credit crisis is quietly building beneath the surface.
Conditional #1
Confirmation on volume of current break. (Below 80 on volume and daily close)
It is already entering trigger territory, with the daily time frame now confirmed, but volume remains so weak that it reduces the signal’s significance. We prefer to see a weekly close confirmed by volume before declaring the trigger fully active.
Conditional #2
SPY Gamma Flip Break
Execution remains conditional on SPY breaking its Gamma Flip level, confirmed by a Z_VOL spike.
This transition from Long Gamma to Short Gamma would likely collapse the current mechanical price support, triggering a volatility expansion into the liquidity void identified above.
When dealer positioning flips from long gamma to short gamma, hedging activity stops damping volatility and starts amplifying it.
Waiting for this trigger removes the risk of fighting dealer hedging flows and confirms that the broader macro derisking process has finally taken control of the tape.
Vehicle Selection
We ran the numbers — literally thousands of them — with one clear objective: identify equities that, even during this week’s “recovery,” displayed more weakness than Junk Bonds themselves. These are some of the names we found.
It is worth reviewing these charts one by one. We do.
Key Point
These assets posted weaker returns than HYG, but with significantly higher volume and lower volatility. The implication is critical: these flows were larger, cleaner, and more directional than the ones observed in HYG itself.
American Express Market Structure
Weekly
The market structure remains short. The market’s attempt to reclaim the previous highs failed very early — and by a wide margin. There is still no Price Discovery phase in place, but price continues to trade within the last confirmed structural range.
Daily
Zooming into the lower time frame provides additional detail. We now have a daily failure developing inside the broader weekly failure structure shown above.
Stop Loss
The correct stop for this trade is a daily close above 336.10, confirming that price has reclaimed the 200-day moving average. (Daily close)
Entry Point
Breakout entry between 323 and 329.
Target #1: 292 — R/R = 2.38
Target #2: 223 — R/R = 6.85
This is the setup. Of course, execution will not be exact. Momentum, volume breakouts in HYG or AMEX, and any correction in SPY will all influence the precise timing of the trigger within these parameters.
Of course, this is one of our set ups that we made public for marketing purposes.
Intermarket Flows
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