Morning Thoughts May 25

  • Directionless – volumes down 10% DoD (-7% vs 10day ave) – quieting down as head to 3 days weekend – SPX rallied late day (and regained day’s VWAP) on headlines Italy PM Monti reit support for euro bonds and said “hopeful Italy can move Germany to accept actions for the greater good of the EU”.
  • Treasuries weakness gave equities support all day – 10y yield closed at day’s high of 1.77% – on flip side, €uro’s px action weighed on us all day (closed near day’s low of 1.253).
  • Thought was encouraging we held given: 1) Euro PMI Mfgs missed (China sub-50), 2) German ylds still at historic lows, 3) Greece fell another 4.5% 4) ECB showing O/night bank borrowing HIGHEST since late Mar 5) Germany IFO Biz 1st MoM decline in 7mo and 6) U.S. macros generally weaker.
  • But it likely won’t matter as we remain in the trading range between 1290 and 1340 on the SPX.
  • I remain short a 1/3 position in SPY with a stop at Tuesday’s highs.  I don’t have any big conviction on this trade since we are in the middle of the range we could go either way.
  • My best suggestion is to entirely stay out of the market here with as much cash as possible until we see a resolution either up or down.  Headline risk remains huge.

The Russell 2000 sits at the 200 day moving average but looks to be consolidating before further losses.

The SOX sliced through the 200 sma a ‘long’ time ago and also looks to be consolidating before heading lower.

How about volume on the NYSE…is that a rounding bottom?  Its a stretch but hey…I’ve heard wilder things.






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