Morning Thoughts June 12

  • SPX opened on highs and closed on lows on heavy volume (126bp move down). Despite EUR 100bn bank bailout, IBEX closed -54bp (fell 500bp+ intraday) & 10yr +30bp to 6.466. Also weighing on sentiment, Moody’s is expected to announce downgrades to 17 global banks this week (TTN). Despite heavy closing volume, overall volumes were -8% v 5d & -13% v 20d avgs.
  • Financials worst super-sector, led down by GNW -5% & C -4%. Moody’s rating overhang continues to weigh on the group. Regionals were hurt by concerns they may have to take down their NIM margins.
  • On the chart below although it may be hard to see note how industrials and energy are lagging the S&P 500.  Not until those sectors are giving leading signals to the upside can we more easily declare temporary victory for the bulls.  Financials are still outperforming the SPX but they need help from other sectors.

  • Also note that the inverse relationship between the dollar index and stocks is back – yes it’s been back for a while (note the green hill at the bottom right of the chart – this is important to understand as we monitor cross asset correlations for clues to stocks.

  • For the first time in a few weeks I am seeing a decent setup for a swing trade.  All the major stock indices and S&P 500 cyclical sectors left clear outside engulfing candles on the chart yesterday.  See both the S&P 500 and Russell 2000 charts below.  These candles came after a shooting star candle last Thursday and right at the top of the current trading range.  I may look to short some SPY at some point this morning for a Bucket 2 trade.




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