WORLD MARKETS ARE “TENTATIVELY HIGHER” THIS MORNING as questions and concerns abound about what is happening in Europe. Quite simply, both Belgium and Italy came to bond market auction, and they did in fact get them off with varying success – success in that bond yields were higher, but perhaps not as high as first anticipated. But the real question concerns the ECB move to sterilize its bond purchases this morning. The ECB did not sterilize all of them – which in new layman terms mean they have allowed for a small amount of QE to enter the system. The question is whether this was intentional or whether it was simply they have run into the limit upon which they can sterilize. There are opinions on each side of the coin; and we’ll let the market decide for itself for we can make either case. Regardless, the Euro has weakened rather sharply on the prospect of QE in the Eurozone, and with a growing consensus suggesting the ECB shall lower rates at the next meeting on Thursday, December 1st.
Moving on, we should note that as the Euro weakened – so did the precious metals from positive to negative, which is an interesting reaction given the Eurozone prospect for QE. Too, we find the S&P futures have weakened from their highs at 1206 to 1195; and we should further note that this weakness from 1206 was just below our resistance zone. Lastly, US bond yields fell off their overnight highs as this occurred – which is perhaps related to prospects for another round of Fed-induced QE-3 as 16 of the 21 primary dealers expect the Fed to embark upon some form of QE-3 in the weeks ahead – most likely in the mortgage market. We think it highly likely, and we wouldn’t be surprised to see a “co-ordinated action” between the ECB and Fed and other central banks to shore up flagging investor confidence.
Last Wednesday, we were buyers of the S&P 500 futures at 1174; and we certainly took a great deal of heat that Wednesday and on Friday. However, yesterday’s sharp rally is extending again this morning to 1195, and puts us profitable in the position. Now, we’ll roll up our stop loss to 1180 to lock in part of the profit, and we’ll look for rally in the least towards the 1210-to-1220 zone, and it shall be exactly how prices treat this level as to whether we exit our position…or add to it.
Outside of this – nothing has changed. We are interested in the “risk-on” position in Gold futures given it is weakening this morning, and perhaps other commodities from a long perspective as well. But it is too early to trade these given the amount of volatility in the market. Also, we interested in shorting the interest rate futures, for although the stock indices declined rather sharply last week – the “safety trade” in the interest rate futures did not materialize to the degree expected – even under the bullish auspices of bullish Treasury auctions. When markets don’t act as they are supposed to under rather “dour” circumstances, then it time to take the other side of the trade.
RECOMMENDATIONS
1. LONG: S&P 500 Futures (ES) — 3 CONTRACTS: We are recommended a long position on 11/23 at 1174 given the short-term oversold condition — which in fact continues to be in place. We’ll look for a move upwards of 1220 by year-end if not sooner. Our stop loss is to be raised to 1180 to lock in a modest profit if the trade goes against us in the days ahead.
New Recommendations:
1. NONE ( ) — CONTRACTS: None.
Please see the attached pdf file for the full report.
Moving on, we should note that as the Euro weakened – so did the precious metals from positive to negative, which is an interesting reaction given the Eurozone prospect for QE. Too, we find the S&P futures have weakened from their highs at 1206 to 1195; and we should further note that this weakness from 1206 was just below our resistance zone. Lastly, US bond yields fell off their overnight highs as this occurred – which is perhaps related to prospects for another round of Fed-induced QE-3 as 16 of the 21 primary dealers expect the Fed to embark upon some form of QE-3 in the weeks ahead – most likely in the mortgage market. We think it highly likely, and we wouldn’t be surprised to see a “co-ordinated action” between the ECB and Fed and other central banks to shore up flagging investor confidence.
Last Wednesday, we were buyers of the S&P 500 futures at 1174; and we certainly took a great deal of heat that Wednesday and on Friday. However, yesterday’s sharp rally is extending again this morning to 1195, and puts us profitable in the position. Now, we’ll roll up our stop loss to 1180 to lock in part of the profit, and we’ll look for rally in the least towards the 1210-to-1220 zone, and it shall be exactly how prices treat this level as to whether we exit our position…or add to it.
Outside of this – nothing has changed. We are interested in the “risk-on” position in Gold futures given it is weakening this morning, and perhaps other commodities from a long perspective as well. But it is too early to trade these given the amount of volatility in the market. Also, we interested in shorting the interest rate futures, for although the stock indices declined rather sharply last week – the “safety trade” in the interest rate futures did not materialize to the degree expected – even under the bullish auspices of bullish Treasury auctions. When markets don’t act as they are supposed to under rather “dour” circumstances, then it time to take the other side of the trade.
RECOMMENDATIONS
1. LONG: S&P 500 Futures (ES) — 3 CONTRACTS: We are recommended a long position on 11/23 at 1174 given the short-term oversold condition — which in fact continues to be in place. We’ll look for a move upwards of 1220 by year-end if not sooner. Our stop loss is to be raised to 1180 to lock in a modest profit if the trade goes against us in the days ahead.
New Recommendations:
1. NONE ( ) — CONTRACTS: None.
Please see the attached pdf file for the full report.