Guest Post by Macro Story
We have had a similar reaction in the Markets to the capture of Bin Laden. Speculative positions after the Debt Ceiling Deal, both long and short, will shortly be closing out, and the Market will probably reach another support level around these levels. Although the trader is bearish long term, we are approaching some important support levels, just like we did some weeks ago.
Some interesting observations from Macro Story below.
2007 Comparison
The candles have been eerily similar in both charts since Point F was established. If this analog continues to play out the next few days should be volatile but somewhat range bound. Considering the next major data point is Friday’s NFP report this would make some sense. Additionally having the debt ceiling “nonsense (only word to describe it)” behind us should smooth out some volatility.
Skew Vix Divergence
I don’t fully trade off this signal yet but find its correlation with the SPX too strong to ignore. It is currently at two prior lows which has signaled bounces in the SPX but on a longer time frame this value is of no significance so personally I won’t be rushing out to cover shorts or go long. At least not on Tuesday.
Skew Vix Divergence Historical Chart
Notice how low the divergence can in fact go. An example would be the vix spiking as markets sell off all while the skew falls.
News That Matters
Ft.com
The US looked set to avoid a potentially catastrophic default on its debt, the FT says, after the House of Representatives voted 269 to 161 to increase the debt ceiling on Monday night. The legislation is expected to easily pass a Senate vote on Tuesday. http://ftalphaville.ft.com/thecut/2011/08/02/640141/markets-unimpressed-as-debt-deal-passes-house/
The value of Twitter has jumped to $8bn, more than double the level accorded to the company as recently as late last year, according to the terms of a fresh $800m investment in the company. Twitter announced the on its corporate blog on Monday its latest round of investment had been led by DST http://ftalphaville.ft.com/thecut/2011/08/02/640066/new-investment-values-twitter-at-8bn/
The UK’s benchmark borrowing costs came within a whisker of their all-time lows on Monday as the rapid fall in gilt yields continued apace, reports the FT. UK 10-year bond yields hit 2.797 per centhttp://ftalphaville.ft.com/thecut/2011/08/02/640036/uk-borrowing-costs-brush-close-to-record-low/
Bad economic news bombarded the Treasury on Monday as new IMF forecasts cast doubt on the chancellor’s deficit reduction plan, while near-term indicators suggested the recovery was losing the little momentum it had, http://ftalphaville.ft.com/thecut/2011/08/02/640011/imf-casts-doubt-on-uk-deficit-plan/
South Korea has prevented three conservative Japanese politicians from entering the country in an escalating diplomatic spat over disputed islands, reports the FT. Lee Myung-bak, South Korea’s presidenthttp://ftalphaville.ft.com/thecut/2011/08/01/639946/s-korea-denies-entry-to-japan-politicians/
China has announced its first nationwide feed-in tariff for solar projects in a step that underscores the determination of the world’s biggest energy user to move toward renewable energy, reports the FT. Beijing has made renewable energy a keystone of its energy policy and aims to raise solar power capacity tenfold in the next five years. http://ftalphaville.ft.com/thecut/2011/08/01/639936/china-backing-for-solar-power/
HSBC is planning to hire up to 15,000 people in fast-growing markets in Asia and Latin America over the next three years even after confirmation of the bank’s plans to cull jobs elsewhere, reports the FT.http://ftalphaville.ft.com/thecut/2011/08/01/639926/hsbc-set-to-launch-hiring-spree-in-asia/
Market in Panic Mood-Flash Crash 2.0 around the corner?
Something is WRONG. Market reversed big time today, just as the trader wrote this (European) morning, “….but it should be a rather short lived rally, as the Economy is in free fall mood, irrespective of Debt Ceiling hikes”.
This is getting awfully close to that Flash Crash feeling, we all remember, only a year ago. People are trading everything in great panic. We have seen desperate Alpha chasers get in and out of the market, with the same casino mentality we see people behave in Las Vegas. Like we concluded on Friday, this Market is very close to an Inflection Point, where liquidity will vanish in a split second, and people will be left wondering “why did we not learn anything from last year’s Flash Crash”. Some of those European troubled Indices. Many risk off indices have reversed some 5% from today’s highs. Below Italy, Spain and one of our favourite Risk measure Indices, the Swedish OMX.
Some Debt charts…..
Obama is adding on to the Mountain of Debt, although at a slower pace compared to the great Bush. All great news, but this debt time bomb risks of exploding later. Taleb’s words;
“This is not an insoluble problem,” he said of the U.S. debt crisis. “You can fix it with some fiddling here and there. But you need the will to do it. And you need consciousness about the importance of debt. I don’t see that. Politicians are good at getting elected, not at solving problems like this.”
and who is holding IT;
Chart; Jessie
What’s next after the Debt situation resolved?
Great News, the Debt ceiling issue was resolved in the last minute. Nobody thought really the US would default (now). The Markets reached some good support levels on Friday, and the bounce is welcome. The dynamics building up during the past months, will create a huge opportunity later this autumn. As the bulls and the bears get more confused by the day, and we see panic, both on the moves up, as well as on the moves down, we expect the Market to eventually reach the inflection point, and totally brake later this autumn. For now, enjoy the below picture, which is a great summary of the Great America.
Courtesey Phil’s Favorites.
News That Matters
All news continue below,
Ft.com
London’s position as a global financial centre is under threat from the proposed merger of Deutsche Börse and NYSE Euronext as key investment decisions affecting the group’s UK businesses may shift abroad http://ftalphaville.ft.com/thecut/2011/08/01/638886/lse-chief-warns-of-mergers-threat-to-uk-voice/
The Confederation of British Industry has cut its forecast for UK economic growth, the WSJ reports, because it believes companies have lost confidence and curbed their activity in response to global shocks such as the eurozone debt crisis http://ftalphaville.ft.com/thecut/2011/08/01/638861/british-growth-forecast-to-slow-this-year/
Forcing companies to publish their greenhouse gas emissions – a pre-election promise by both coalition partners – could cost British business up to £6bn over the next decade, the government has claimed in an impact assessment study. But the FT reports that calculation has been questioned in a report by independent consultants working for the Aldersgate Group, http://ftalphaville.ft.com/thecut/2011/08/01/638831/green-group-disputes-carbon-reporting-costs/
Greece and other stricken countries will have faster and easier access to tens of billions of euros in European Union funds under a plan to help stimulate their economies, the FT says. The plan, to be unveiled on Monday http://ftalphaville.ft.com/thecut/2011/08/01/638746/eu-seeks-to-speed-funds-to-peripherals/
China’s manufacturing sector growth eased slightly in July but showed signs of stabilising, the FT reports. The official purchasing managers’ index (PMI), designed to provide a snapshot of industrial conditions http://ftalphaville.ft.com/thecut/2011/08/01/638731/chinese-pmi-still-in-positive-territory/
A leading European hedge fund is preparing to build one of London’s most expensive housing developments as global investors scramble to gain a foothold in the capital’s resurgent residential markethttp://ftalphaville.ft.com/thecut/2011/08/01/638701/super-rich-to-get-new-london-address/
Ahead of the opening of Asian markets, President Barack Obama announced on Sunday night that US Congressional leaders had reached an agreement on a tentative deal that would extend the debt ceiling and avoid a US default http://ftalphaville.ft.com/thecut/2011/08/01/638646/us-debt-deal-announced/
The Deal is On (for the moment)
Soap Opera goes into Expiration Mood. The Deal is On it seems. ES futures spiking up some 15 handles, gold off. Let us see who will get the last saying.
As the trader wrote on Friday, the Market is up for a bounce, as we have reached some good support levels, but it should be a rather short lived rally, as the Economy is in free fall mood, irrespective of Debt Ceiling hikes.
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