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Tuesday, February 3, 2015

Tuesday Market Update -- The Big Compromise Rumor

The news of the day is a rumor that a Greek compromise is brewing. What a bunch of hopeful buggers.

ES Futures:
Down over 10 points overnight from yesterday's rally highs then exploded 20+ points on the Greek compromise rumor. That's some rock 'n' roll.

However, they've since come off their highs quite a bit. So be mindful of the above rumor.

The Aussie is under pressure after the RBA (*correction: unexpectedly cut rates to a 2.25% record low). EURAUD was up over 2% minutes ago. AUDUSD suddenly looks interested in its 2008 lows. This is another currency pair that I thought was turn up but hasn't. Obviously something is going on that is much bigger (and possibly darker) than previously thought. I have lost one tranche of calls on the Aussie so far.

I think I may have come up with a wild enough speculation why the volume in 10s is so high: supply & demand.

U.S. to Reduce Debt Next Quarter After Borrowing Needs Fall

The treasury just announced that it will suddenly issue over 25% less marketable debt this quarter than was previously forecast (because Jacob Lew says things are sooo great that they don't need to borrow as much).

A cool thing happens when you control the supply: you can push up prices.

And with Wall Street's herd mentality, when prices go up, people buy more. The Fed's got our back, bro.

So an ideal way for the Fed to get what it wants without taking the blame -- higher interest rates -- would be to do some well-timed hawkish jawboning when "irrational exuberance" hits the supply-constrained treasury market.

With liquidity a fraction of what it used to be, there would be no exit. 10-year rates could be back to 5% in a matter of days.

Crude is ripping with volume, up well over 2%. Not thinking it's THE low, but maybe time for an epic bounce. NG still looks close to the same, but appears to need more subdivisions in its wave structure.

Gold has held above 1239 but needs some rock 'n' roll of its own if this rally is for realz.

S&P Outlook:
Not one but two swing points broke yesterday and then the sharp rally ensued.

With the overnight rally fading, however, it would not be good for the S&P to stall near current prices which represent a 38% retracement. There are better levels to test in the 2030s and back at the 2060 area. If not, getting under 1990.76 would be a great stop area. Below that could mean trouble.

Remember, futures rallied on a rumor. There is no way Greece is suddenly going to play nice. That's wishful thinking by EU bureaucrats and those that admire them.

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