The collision of global markets and social mood

Monday, March 2, 2015

Monday -- China Cuts Again, QE Deflation, Six-Sigma Event Warnings

ES Futures:
Aimless wandering overnight, currently pressuring Friday's lows.

China's second rate cut in 3 months was met with a benign rally.

Citigroup's Matt King (via Zero Hedge) put out some fascinating work about how central banks may be creating deflation by trying so hard to avoid it. A great quote by a Citi client summed it up perfectly:

“By lowering the cost of borrowing, QE has lowered the risk of default. This has led to overcapacity (see highly leveraged shale companies). Overcapacity leads to deflation. With QE, are central banks manufacturing what they are trying to defeat?”

Some people mock Zero Hedge. I'm thankful for them and for their connections. The information they share is a much-appreciated the antidote to never-ending bullshit.

Elsewhere, the Center for Financial Stability is out with a warning (also brought to us by ZH) about the recent six-sigma event in the 10-year and how it may be a canary for more six-sigma moves. The Swiss franc comes to mind. As does potentially the VIX and the S&P 500 . . .

Could oil be sending us a message too?

Euro is firmer today after USD is backing off after a new rally high.

Prices are down this morning, with 10-year volume, once again, dwarfing the overnight Globex action. This could still be a major game changer at some point.

Crude oil and NG are both under minor pressure. Still waiting for higher odds.

Gold is recovering from its correction from the 1300 level but has a long way to go to prove itself.

Special Situations:
Given the above six-sigma topic, the VIX will remain an accumulation trade for me for the foreseeable future.

S&P Outlook:
The chart is in No Man's land currently. Here too higher odds need to appear. I'm interested in either buying the 2050 area or selling another weak high (by getting rid of some SPY calls and adding more UVXY).

Amazingly, 2103.20 had held. If it breaks, the more important level is 2085.44. A break of that level could open the door to 2050.

To the upside, there are still multiple Fib targets that should be taken seriously.

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