Sittng on My Hands

We're not moving much over the past few days, its been tight trading between 1236 to 1262.  The ECB is coming in to support the Italian and Spanish bond markets.  ECB head Draghi has shown his true colors: Bernanke Light.  He is following in the same footsteps and will start wholesale monetization of the PIIGS debt.  It should be euro negative, were it not for QE3, which will be coming to a theater near you.  It is a fiat fantasy, printing money to solve problems.  Gold should hit $2500 sometime next year. 

Stocks can't stay down with this kind of money printing from the 2 biggest central banks in the world.    The world is awash in liquidity.  Any contagion fears that take stocks down are buying opportunities.

Italy and Spain Bonds

Italy and Spain are solvent countries facing speculative pressure on their bonds.  Rather than an attack, it just seems like the arbitrary bond holders are selling these 2 countries' bonds as a precaution against adverse moves rather than an actual fear that these countries will be like Greece.  Fundamentally, they are in better shape than 6 months ago when yields were lower because of the ECB backstop and EFSF which will commit to bond purchases later.  

This is still a faux crisis which is nothing like 2008.  If Italy and Spain were really in bad shape, I would say that this was a real crisis.  But the market is overreacting by grouping them with Greece.  It's traders pricing in a coming recession in Europe and contagion fears.  This doesn't mean we don't go down.  It just means if we go down to 1180, we won't stay down there for long.  No opinion on today's trading, it is fairly neutral on most fronts.

Toothless Bears

Another gap up and Europe is surging higher.  I wouldn't fade this gap up, it looks like the bears have gotten run over again by the bulls.  They might have another chance next week, but for now, I would not play either long or short.

Getting to Tech

Tech stocks have been the safe haven of safe havens in this market.  It is a consensus view that if you want to be in stocks, you have to be in US stocks, or emerging markets.  If you are in US stocks, you have to be in dividend paying names or tech.  The long tech trade is a crowded trade.  The beta chasers are all in on tech.  They are avoiding high beta sectors like financials and the industrial cyclicals.

The NDX has outperformed S&P 500 for most of the year, but since we've bottomed in October, the S&P has been catching up.  It looks as if tech stock weakness could be another catalyst to pressure this market lower.  Apple looks like it has topped out. 

The size of today's gap up surprised me, but its been a gap and crap.  There are still a sizeable amount of dip buying funds who are chasing performance to make up for their bad numbers.  They are the weak hands that cause big whacks like yesterday.  They will be the ones panic selling in a couple of weeks as Europe gets shaky.

Mediocre Volume

Surprised to see the volume fairly light on such a big down day, this is up to 2:00 PM, maybe we'll have a lot more volume pick up in the last 2 hours of trade.  But seems like there isn't any panic.  This is unusual because we've seen heavy volume on the down days, which cleared out the weak hands for moves higher.  I would be very wary of buying any dips for the next 2 weeks.

Doesn't Matter Till It Matters

We've been shrugging off the slow motion crash in Italy for the past several days and it finally hit the stock market.  You've got a run for liquidity.  Italian 10 year bonds are near 7.5%, and are trading like hot potatoes.  This is going to pressure the European banks and we'll likely see ECB intervention soon.  I remain bearish because the stock market still has a long ways to go to reflect everything going on overseas.  Plus we've got the US budget committee having to come up with budget cuts by November 23.  That will keep traders from fully embracing risk for the next 2 weeks.  Staying short.

Twilight Zone

Italy is entering into the Twilight Zone.  Berlusconi is barely hanging on, which is about the worse possible political scenario for Italy.  Also you have the 10 year bond going to new lows.  US stocks are putting on their best Alfred E. Neuman act but eventually the turd hits the fan.  Expecting some bigger volatility in the coming days as the banks in Europe get taken out back. 

Consolidation

We have closed between 1250-1258 for the past 3 sessions, tightening the trading range.  I expect a 50 point move out of this consolidation over the next several days.  My belief is that it will be down.  Mainly based on the continued underperformance of European equities, growing complacency, and Italian 10 year bond pressures.  The Italian sovereigns are heavily owned by the European banks and any kind of run on those bonds would put extreme strain on the balance sheets of the European banks. 

A short around 1270 would likely be profitable in the intermediate term. 

Hard to Game

Headline risk coming from Italy has thrown a wrench into the market patterns.  Instead of getting the gap up, we got a gap down but only a minor one from much bigger weakness earlier in the overnight session.  I would look to position short because the Italian 10 year yields has reached terminal velocity.  We'll probably have a moment of panic during US hours, not just European hours sometime soon.  Early strength followed by afternoon weakness today.

Gap Up Signal

Expecting the market to gap up on Monday.  The Greeks were the excuse to sell today.  Once that excuse is out of the way at least in the short term, they will bid 'em up as the algos go back to work.  We may get to 1270-1275 area before we stall out and drop hard. 

Short Soon

We've gone up the past 2 days, after going down for 2 days.  Yet we are 35 points away from Friday's close.  I notice a subtle shift from strength to weakness here.  Sentiment has gotten much less bearish, according to surveys and just from my anecdotal feel from watching CNBC.  This while we trade sideways to down.  The Italian 10 year yields have hit a new 52 week high.  Greece is a smoke screen for the deterioration in the Italian bonds.  The ECB still hasn't signaled it will increase its bond buying program, and it will be hard to do that politically until they see the market get panicky.  The Germans are steadfastly against any monetization of PIIGS debt, so the ECB can't do much just yet.

Not sure about today, just believe we're going to go lower from these levels over the next 2 weeks.  Initial target around 1185, which is the 50% retracement of the move in October.

ECB Rate Cut

Well, the new ECB head has lowered rates 25 bp, and we get a spike up on that.  They could drop it to zero and it doesn't solve the problem of Greek debt.  Greece looks like it is on the brink, with the ruling government probably in its final days, we may seem some chaos with no government soon.  Expecting intraday weakness today.

No QE3

If you want the Fed on your side, you want them to say the economy is horrible.  They did not do that, which tells me that they are going to wait at least a couple of months before considering more QE.  That is a definite negative.  Bernanke is starting to fee the political pressure from the Republicans and is taking his foot of the gas for fear he will get fired if Obama is not re-elected.

DAX Dropped 600 Points

Sometimes we are too focused on just the S&P 500.  When you look at Europe, it is back to being a laggard.  Dax has dropped 10% from high to low from last Thursday to yesterday.  Eurostoxx 50 at over 10% drop.   S&P dropped just 80 points, or about 6% from high to low.  Europe seems to be a leading indicator for the S&P, when it lags, it signals trouble ahead.  It has been lagging the S&P for the last 2 weeks, and the market finally cracked. 

Enough with the Greece charades.  They should just pull the plug on the pig.  Euthanize it instead of trying to save Greece.  It isn't worth saving.  When they do finally let Greece go bankrupt, Europe will probably be able to rally for 6 months nonstop. 

Expecting a dip and run today.  Buy the dip, we are oversold. 

Fast Moves

This market is throwing out all the patterns from the past.  It goes up in a straight line and goes down in a straight line, with very little consolidation in between.  We are not down because of Greece, they are meaningless.  We are down because too many fund managers got nervous being left behind and chased the market higher after the good news came out! Now they are caught with their pants down after buying the euphoria (which was on huge volume as mentioned last week). Calls for new highs, 1300, they were all signs of a top. 

We'll have a nasty down day today and then we'll probably grind higher slowly on a wall of worry.