Morning Thoughts May 30

  • Well off lows – volumes better by 24% vs. Fri, but Friday was the LOWEST volume day of the year (yesterday’s volume 14% below 10day ave) – technically nowhere – macro was bad and Spain fell to another 9yr low, but markets held (definitely a win).
  • We rallied after 10am EST on chatter ECB could make comments re potential bank recapitalizations at 11am EST (was unconfirmed) – also some pointed to month-end asset re-allocation given equity underperformance in May, forcing funds to get their equity/bond ratio back to tgts (bond ETFs saw good vlm…AGG, HYG, LQD).
  • Right after Europe close, no announcement was made by ECB and we drifted – €uro fell below 1.25 (Dollar’s DXY made fresh 2yr highs) and as a result, commodities got hit. – BUT as a, we had a great recovery day end (on no news), as SPX recouped its VWAP and BETA was bought.
  • So all in all we remain rangebound in equities but smelling very much like further downside is possible within the coming days or weeks.
  • Note the recent uptick in correlation of the EUR/USD versus the SPX…bottom part of the chart below

  • Not all that much new to talk about but we remain rangebound in the S&P 500 between 1290 and 1340 and unless we break above or below the range this remains a very difficult bucket 2 trading environment.  Be quick with Bucket 1 if you must trade
  • the Russell 2000 is slowly but surely coming into resistance and that area (neckline of head & shoulders) area will be important to watch.

  • For my part, I remain short a 1/3 position in SPY and happy with it.  Otherwise I am quick intraday to do some trades.  While I think the 1290 area is a decent spot to add some longer-term Bucket 3 risk I will refrain from doing so for the time being as I want to generate alpha with Bucket 1 at the moment


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