Morning Thoughts June 8

  • most fireworks in AM (China rate cut, Bernanke’s speech, BoE call, etc) – Volumes back to norm (down -4.5% vs. previous day and -3% vs 20day). Treasury stable (10y rates 1.65%) – Defensives better  – fresh-shorts laid out (Energy and Mining specifically).
  • BUT we started to fade after 1) Bernanke said “ready to act” but no details  (reluctant on specifics and kept options wide open) 2) Fitch saying would cut U.S. AAA rating if no credible fiscal consolidation plan and 3) S&P estimated Spanish banks loan losses at €80b~€112b (said can absorb only €60b this yr & next).
  • Around 3pm, after the weak consumer credit #s, bids disappeared and we closed near day’s low – VWAP on SPX was a cap all day…. Other reasons for late day fall were 1) Fitch downgraded Spain 2) Fed’s proposal for stricter capital rules 3) CNBC saying Moody’s downgrade of the U.S. banks could come after the close.
  • So there we have it, we remain in the middle of a trading range – one that is volatile but more than anything entirely unpredictable due to massive headline risk
  • I remain 96% cash and picking away at the market intraday only as I want to generate alpha that way for the time being
  • I will point out however that yesterday’s shooting star candle on the daily chart of the S&P 500 would have gotten me short for a trade if I currently would trade bucket 2.  See the chart

  • In the world of bonds note that 10 year German bunds are at a yield support level but it wont take much for them to break below and hence push German bonds up.

  • 10 year U.S. treasuries are already on the way up again in price (down in yield).  I am watching both charts to see potential risk appetite (or lack thereof) for equities.

 

 

 

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