Probabilities Over Prophecies

Welcome back to Hitting the Bid Weekly!

Around the Market

Equities just keep chugging along!

The S&P 500 (via SPY) continued its rally last week, brushing off negative headlines over the weekend. From May 12 to May 19, SPY rose another 2%, bringing its total gain to 23.5% since the April 7 low. Honestly—wow, just wow.

Other notable market moves since last week:

• Volatility (VIX) is roughly flat, closing at 18.14 on May 19. That’s up 0.90 points from Friday’s close but is essentially unchanged compared to last Monday.

• Gold is also mostly flat, up just $5 from last Monday. That said, futures dipped as low as ~$3,123 before rallying into this week.

• Bonds are lower but staged a big comeback on Monday—we’ll dig into that later.

• The US dollar fell about 1.35%, led lower by strength in the Euro and the Pound.

• Crude oil is higher and nearing the top side of its recent range but can’t seem to push higher

• Bitcoin gained roughly 4% and looks to be building some positive momentum.

The Week Ahead

Economic Calendar

• S&P Global US Flash PMI (Thu 5/22 9:45a ET)

• Fed Chair Powell Speech (Sun 5/25 2:40p ET)

• US Durable Goods Orders MoM (Tue 5/27 8:30a ET)

Notable Earnings

• Target TGT (before open Wed 5/21)

Not an exhaustive list — just a few I’m watching closely for potential market impact.

On My Radar

In last week’s video, I looked to size up a trade in /ZN (10 Year T-Note Futures). The treasury market has fascinated me over the past few years. Now that I’m actively trading bonds myself, I’ve learned a ton just by observing how the market reacts to economic indicators and how the broader macro landscape influences prices.

I already have plenty of equity exposure, so I’m focused on finding trades in non-correlated assets to maintain portfolio diversification. I keep coming back to bonds—especially after /ZBM5 (the U.S. Treasury Bond Futures June contract) broke below the April 9 low of 111’17, hitting 111’15 on May 19.

What stood out to me: bonds rallied all day Monday starting at 9a ET—despite what should have been negative news for treasuries. That may be a signal the market still has an appetite for U.S. treasuries and could be the start of some positive momentum.

Given that /ZB currently has higher implied volatility than /ZN, and an IV rank over 30, I believe a short put spread is a solid strategy here. This structure benefits from neutral-to-bullish price action and/or falling volatility—and since it’s defined risk, I know exactly how much I stand to lose if the trade moves against me.

For a smaller, non-futures trade, consider the ETF TLT. It’s an iShares product made up of U.S. treasury bonds with 20+ year maturities. With a lower share price and cheaper options, it may be easier to size a trade that fits your portfolio.

What’s Top of Mind

A few years ago, I was introduced to the idea that nobody knows anything when it comes to markets. Now, this may be a controversial statement—especially with the constant stream of analyst ratings and the popularity of financial media like CNBC. I was skeptical at first. But the deeper I got into trading, the more I started to believe it.

Here’s one example: I mentioned that Moody’s downgraded the U.S. sovereign debt rating, and equity futures sold off heading into the weekend. Over the next 24–48 hours, headlines spun this as bearish for U.S. equities and bonds. What happened Monday? The S&P 500 rallied most of the morning and closed slightly higher than Friday. Bonds finished lower—but only after seeing steady buying throughout the day.

Another example: Through late 2023 and into early 2024, there was nonstop chatter that the Fed needed to cut rates and was “too late” because of employment concerns amid cooling inflation. The consensus was that rate cuts would push yields lower across the curve and stimulate the economy. But when the Fed finally lowered the federal funds rate in September 2024, 10-year yields went up—rising from around 3.6% to a high near 4.8% by January.

It’s moments like these that remind me: nobody really knows anything. Not even me. Markets will do what they want, when they want. I’m not saying predictions can’t be right—but more often than not, they’re a coin flip. Maybe 51/49 at best. And even if the prediction is right, it probably doesn’t align with your timeframe or your risk tolerance. You’re better off not letting the noise cloud your judgment.

This newsletter is here to offer perspective, share insights, and—more than anything—help you think for yourself. I want to challenge you to dig deeper, think critically, and develop your own framework that gives you edge in the market.

So if nobody knows anything… what do we do?

As I’ve said before: we think in probabilities, not certainties. It gives you better inputs to your mental calculus and helps you make smarter decisions.

And once you’re thinking in probabilities, what’s next? You start thinking in terms of expected value.

We’ll pick that up next week…

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Hitting the Bid content is for informational and entertainment purposes only. The information contained is not, nor is it intended to be, trading or investment advice or a recommendation of any security, futures contract, digital asset or alike. Trading and investing contains risk. All investors should evaluate their own risk tolerance, financial situation, and investment duration before entering any trade or investment.