Market Conditions: 6/28/11

  • The “Greek austerity measures” i.e. Greece’s second bailout in 1 year is scheduled to pass Wednesday and the market is buying going into the vote.
  • Sequence of events last year:
  1. April 26 – market indices hit two year highs. SPX @ 1220, DJIA @ 11260
  2. Early May – riots in Greece were being broadcast on CNBC
  3. May 6 – queue flash crash. DJIA drops 1,000 points before recovering hitting intraday lows of 9870. SPX drops 100 points hitting lows of 1065.
  4. May 9 – Europe approves a trillion dollar rescue package creating the European Financial Stability Facility and Greece gets a €110 billion loan.
  • The second Greek bailout which will be passed tomorrow is going to be over €120 billion. If you feel like being a philanthropist I hear the yield in Greek bonds is more than 30%.
  • US markets have been pricing in the vote over the last two days giving investors short term profits and an illusion of market strength. Come Thursday the money will remember that the end of the month marks the end of QE2 and the dollar will continue its deflationary uptrend forcing equity to feel the pain of lower prices from a stronger dollar.
  • 10-Year notes saw a significant nominal drop from this activity.
  • Food prices (corn, wheat, sugar) are rising to their highs of last week and will drop back down to their lows after the news has disseminated through the market.
  • The /ES bounced off the highs from 6/7/11 and is selling off slightly in the after hours session but relatively holding its closing price.
  • The current activity is a repeat of the FOMC decision last Wednesday when overly exuberant investors hoped for another round of stimulus to prop up the market. Even though during the days leading into the announcement it was made clear to the public there would be no 3rd round of QE there was still wild speculative buying on 6/20 and 6/21 which led to an identical move down over the following two days starting at 11:25am (10 minutes after the Bernanke aka Bertanke started speaking). I have to say the balance here is quite impressive wrt the time and magnitude of the move up being essentially identical to the time and magnitude of the move down with the Wed FOMC coming right in the middle. I’m looking forward to watching this all play out and have nothing but love for volatile markets.

#GroundhogDay

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