Morning Thoughts June 18

  • US equity indices posted 3rd week of gains in 4 & continued to progress from successful 200dma support tests of recent weeks, taking all back comfortably into positive territory YTD. Safety bid was the most evident theme within index action. SPX outperformed higher beta peers very significantly on the week. Activity levels remained extremely depressed, with modest sequential declines in turnover stats despite being inflated by Friday’s quarterly expiration (extremely rare). Heavy underperformed from technology, consumer discretionary & materials sectors meant SPXL1 cyclical/defensive ratio lost 101bp on the week, again pretty rare in an up week.
  • Non US equity indices also gained universally, with HK in particular posting its best weekly performance since January. The EEM emerging mkts ETF gained ~300bp for the 2nd consecutive week.
  • US macroeconomic momentum indicators continued rapid decline, are now back to 2010 lows.
  • The most notable action from bond markets was the 2nd consecutive week of heavy losses for German 10y (143bp from 117bp in last 2 weeks). Its also worth noting that short end UST paper appears increasingly desensitized to negativity, with 2y refusing to trade below 25bp in recent weeks.
  • We remain in an ultra sensitive environment to anything news or rumor worthy regarding Europe.
  • In short this leaves us in cash and only committing capital for quick hits intraday.
  • That has been the right call in recent weeks and I am not looking to change that anytime soon…unless more clarity arrives.
  • A better setup here or there for a Bucket 2 swing trade should emerge and I will note them as they come up.
  • For the rest of the summer I will focus blogging activity on the morning session (which historically has been the case anyway).  The reasons are simply that I do not think the European issues will be resolved anytime soon and the morning session will remain a much better time to read the tealeaves while the afternoon sessions will remain randomly volatile as traders focus on the next morning’s potential headlines.  I will even initiate bucket 2 trades (as they come up) in the morning session.




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