Yesterday’s terribly long debate between Francoise Holland and Nicolas Sarkozy helped me reduce the differences between a never-ending American electoral campaign and the well regulated French contest: Americans strive to create a 5 word 5th grade soundbite for Fox or CNN, the French try to loose you in 500 word incomprehensible discourse. Obvious but in the context of a busy week, chock full of earnings, announcements, and a battered VIX, it saps my energy. It feels to me like a Friday but it sadly isn’t; tomorrow brings the payroll and unemployment numbers. The SPY is consolidating at the 200 DMA in anticipation.
Gold (and Silver) are staying in strong correlation with SPY.
If you are trading a flat channel in the $SPY we’re just breaking out under the lower boundry at $139.50
Natural Gas continues to contradict the pundits. See this post. I’m long and buying the dips, and intelligently setting my stops, I hope.
As for sentiment which is always hard to pinpoint, few traders want to be long before tomorrow’s payroll number especially after the ADP miss earlier this week. The irony is that the ADP number is effectively useless, so I work to ignore it…
To be honest, I got taken out when we broke out over $138.50 on the $SPY. Some rolling and cleaning up of the calendar spreads kept me out of big trouble, but the ranges I’ve spoken about over the last two weeks are finished. I’d look now for a 138.50 resistance, if you’re considering short or downside levels.
My comfort level was that $138.50 top and I was as surprised as many at the pop. As you’ve read the stress test “leak”, and Jamie Dimond / Fed soap opera had lots to do with the spike. I’m not completely sidelined but my feeling here is to buy puts, and maybe lots of them or bear spreads for the faint of heart. The $VIX is screaming “watch out”.
And my favorite: Even with a 5% correction in the $SPY we’ll still be in a bull market, that leaves a good reversion to the mean.
One thing I’ve learned from losing money is to avoid betting against the trend or calling the top/bottom. That’s a fools game and you’ll be stopped out quickly. On the other hand, now is the perfect time to buy some protection for expiration on the April, May and January time horizons.
For the entire length of this 3 month rally, the upward steps have lingered under 1% and usually under .5%. Only in the last 10 days has the VIX started to signal caution. The VIX is now solidly over 20 and approaching it’s recent high of 22.
Yesterday at the close we saw an unusual large pop at the close, and today we saw AAPL collapse 25 points in 5 minutes. AAPL lost it’s luster very quickly today, and that’s worrying… Euphoria is the word I’d use. Everyone has AAPL, literally, so sell. It’s hard to write that, given how popular, rich and well regarded that stock is. For how long the euphoria might continue is hard to say, but I read here that they accounted for 90% of the gains for the NASDAQ in yesterday’s trading. Strange. Buy some protection if you’re long AAPL.
Option expiration is coming up this Friday, and tomorrow’s PPI and claims numbers risk to add fuel to this VIX fire.
Complacency is the adjective I would use to describe the current state of the markets. With the exception of GLD and SLV the markets feel less paranoid than they should, less afraid. Maybe there’s reason to be optimisitic, apparently the ECB has things back under control atleast in the credit markets. But there’s a few charts which are telling me, watch out…
Take the VIX which is sitting at nearly 1 year lows. Doesn’t it seem like something is going to happen which will motivate some insurance buying? Take Syria, Greece, the US debt politics, Iran, corporate earnings, etc. There’s a fair amount of risk still in front of us. Straddles might be the order of the day, or VIX futures?
Look at the SPY and depending on your timeframe, some pullback here can only be healthy. We’re also sitting at some high range resistance. I wouldn’t be surprised if we bounce off this 135 level on the SPY.
OK so now we know what we’ve known for a while and the markets are reacting. I’m watching 3 charts: The VIX, ES_F or the S&P, and the EURUSD for a little consolidation.
If you look at the VIX which has just passed 22.
and then the $SPY which is bouncing off 128 (I’ve left my levels)
and finally the $EUR.USD
The divergence between the $EUR.USD and the $SPY is relatively surprising. There’s been a lot written lately about the decoupling (since mid December) of the US economy and the economies of Europe, though after the employment numbers and retail sales numbers released yesterday, market participants are starting to show some doubt. And now a French downgrade… Hmm. After the dust settles on the downgrade we might get back to fooling ourselves that Europe’s problems won’t effect the US, but don’t hold your breath for too long, eventually these two charts will start to find a stronger correlation.
The lower Euro will eventually boost export data in Europe, and put pressure on that same data in the US. As a side note, and in principal your BMW or Mercedes should cost you 15% less today than in did 2 months ago. Does it? I’d like to say the same is true for Renault, but that’s another story.
I’m expecting a consolidation in the $SPY around 128.50 and will be selling a bit of this volatility.