Morning Thoughts May 29

  • SPX closed Friday near lows on extremely thin trading ahead of the 3 day weekend. Volumes were down 35% vs the 5day avg at just 4.8bln shrs.
  • Market clung to hopes that Merkel is considering debt sharing plan. Germany has reportedly developed a 6 step plan for growth for struggling Euro Zone members. However, S&P cut 5 Spanish banks. And Spain’s President for Catalonia reportedly said the region needs government help; later reports indicated the comments were taken out of context. Within the US, Michigan Confidence improved to 79.3 vs 77.8 prior.
  • This week is full of economic data and speeches out of Europe.
  • …as such I want to remain in as much cash as possible for Bucket 2 and take quick hits in Bucket 1.
  • Last week we hit the 1290 area on the SPX which for most of this year discussed to be an area where I would add to risk…equities.  For longer timeframe investors I continue to think that is a good area to add to risk.
  • For my part however I want to remain in as much cash as possible (95% currently) as I want to trade Bucket 1 to generate alpha.  That however doesn’t mean that I don’t see 1290 as a decent buy area with a long enough time horizon.
  • The range for the SPX remains 1290ish – 1340 and any move outside that zone needs to be assessed once it happens.  Last week’s trading was choppy and really only playable for very quick hitters.
  • For the summer months I foresee continued chop but much depends on headline risk.

  • Small cap stocks as measured by the Russell 2000 are consolidating their recent weakness just near the 200 day moving average.  It is likely that the trend will continue lower in time and take the RUT below the sma, but that could be a choppy ride and again in my opinion best playedin quick timeframes unless one is comfortable with wide stops.

  • last but certainly not least, the chart below depicts the trend of 10 year u.s. treasury notes over the past 30 years.  While at some point we will have reached a low in this trend I don’t see it in the Fed’s interest to hike interest rates anytime soon.  On the other hand, at 1.7% what is the interest in buying 10 year paper?  aren’t there better opportunities out there?  Surely there are.





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