The collision of global markets and social mood

Thursday, July 21, 2011

Last Night's Rock 'N' Roll Session

1331.48 was not reached yesterday. Nor did I wait until 10am EST to go to work. Soon after the open I saw extremely weak NYSE ticks and A/Ds (advancers over decliners) suggesting a lack of follow through from Tuesday's strength. It was time to grab my lunch pail and hardhat. I bought SPY 132 weekly puts and later hedged them with e-minis. I also tweeted the entries and exits in real time for those interested. Once again, I made a little on the puts, but the e-minis really came through.

Overnight was a rock 'n' roll session. I'm certain it was because of the action in the US dollar. The S&P futures were absolutely wild. I thought I smelled a rat yesterday afternoon and went flat on all my puts at 1322.75. Glad I did. As I write, futures have just probed 1331 and the puts, being weeklies, would be near worthless. Of course I wish I was still holding my hedge, because the e-minis would be up huge, but that is extremely risky to do overnight. Sleep is more important.

I think 1331.48 is still the target on the S&P cash, possibly a little higher to 1333ish for the 61.8% retracement, but I will continue to look for shorts using options and hedging with e-minis.

I'm contemplating being long in USDCAD now that it's hit new lows, but am still unsure as of this moment.

This morning in Bloomberg I noticed Sarkozy is getting some press along with France, and it isn't good:

France, Europe’s second-largest economy and the second- largest contributor to the region’s bailout funds, is also among its deficit laggards. The nation’s budget shortfall was the sixth-biggest among the 16 countries that were euro members last year. Excluding those now receiving bailout funds, only Spain and Slovakia did worse.

“On our current trajectory, we’re driving straight into the wall,” said Jacques Mistral, an economist at the Paris-based IFRI research group and member of the French prime minister’s council of economic advisers. “There’s no room to maneuver.’’

The surge in borrowing costs for Italy shows investors are ready to pounce on signs of economic weakness and puts France one step closer to the front line of Europe’s debt crisis. Italian 10-year bond yields rose to a euro-era record exceeding 6 percent this week.

Keep this on your radar amid any euphoria over debt deals, here or in Europe. The patient is dying and they're handing out aspirin.

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