Market Conditions: 6/30/11

The S&P move on Thursday was not genuine. The tape’s price action and correlation to leading stocks was off. The market moved at a peculiar time: An hour earlier than usual and with unusually sudden volume at a time when the market is rising on low volume. Fund window dressing has been mentioned and that’s likely the reason.

Parts of the market are at their tipping point:

  • Food prices have gotten attention lately because of their volatility and crop reports. Corn and wheat proved to be good shorts with sugar about to follow suit (/ZC, /ZW, /SB).
  • Crude and NatGas are on the up and up (/CL, /NG). NatGas had a positive EIA report Thursday and crude has faded the increase in supply from the US and IEA last week by gaining $5/barrel over the last three days.
  • Equity primary leaders are failing to retrace to their highs while stocks in secondary sectors extend from their base to all time highs.
  • The Euro is showing volatility (indecision) after the Greek bailout while the USD sits just above it’s inflationary lows ready to break out. The two currencies prove to be on different timelines with the US dollar leading the Euro.

Treasuries (/ZN)

  • (Over)Sold with exuberance on austerity measures vote (raises yield, decreases nominal).
  • June 30, 2011 marks the end of QE2. Today the US gov’t auctioned the last of the treasuries and “QE2.5” is supposedly in the works for another temporary fix.
  • Treasuries are also known as a safe haven for equities i.e. S&P 500 and DJIA [r(/ES) && r(/YM) == -1] = 1.

Crude (/CL)

  • Crude prices normally rise following economic strength because the more money made and spent in an economy means more can be charged for a tank of gas i.e. crude demand increases through a revaluation of buying power vs necessity to determine value, and price/barrel is adjusted on this basis.
  • Crude is a few points above its recent low of 90 a barrel and its recent range goes up to 115 which it will inevitably go back to and above. Look at price data 10, 30, 50, and 100 years previous to see how inflation trends.
  • The U.S. economy is about to enter a state of recession within nine months (Europe has time in the bank for the same reason we did with QE about 3 years).

NatGas (/NG)

  • Stocks making all time highs include LULU, FOSL, CMG, CAT. Primary leaders like AAPL aren’t reaching previous highs.
  • Broad market indices the last 3 days had the largest percent increase since February.


  • EUR/USD fluctuating through pips by the hundreds.
  • US Dollar (/DX) hovering above extreme inflationary lows.

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.