Market Update
Markets are once again moving on news out ofEurope. Trichet’s speech, closely monitored by the HFT Community, have accomplished moves of more than 1%, both up and down, on no volume. After we reached major resistance levels in yesterday’s Columbus squeeze, on very light volume, the rally will lose steam. As the markets trade in flip flop fashion, the great squeeze might turn into another flash move to the downside. Note how the Stoxx 50 is underperforming the DAX compared to yesterday’s US opening. Remember, it’s the Stoxx 50 that has all the banks…
News That Matters
Ft.com
LMS Capital’s non-executive directors have proposed to wind down the London-listed private equity group’s portfolio and stop investments in a strategic U-turn triggered by pressure from Robert Rayne,http://ftalphaville.ft.com/thecut/2011/10/11/698426/lms-plans-to-wind-down-portfolio/
A British Chambers of Commerce survey shows businesses have pared back their investment plans as sales and orders deteriorate. The BCC called the results of the survey of 6,700 businesses “disappointing and worrying”.David Kern, http://ftalphaville.ft.com/thecut/2011/10/11/698406/uk-businesses-pare-back-investment-plans/
Plans to build a new generation of nuclear power stations in the UK are expected to receive a green light today from the final report on lessons from the Fukushima disaster in Japan, the FT reports. The government asked Dr Mike Weightman, http://ftalphaville.ft.com/thecut/2011/10/11/698396/report-set-to-give-go-ahead-for-nuclear-reactors/
Walmart, the US retailer, has closed 13 stores in south-western China after police detained a number of store managers following allegations that employees labelled ordinary pork as organic, the FT reports. The http://ftalphaville.ft.com/thecut/2011/10/11/698371/china-detains-walmart-store-managers/
Global regulators insist the economic cost of implementing tough new rules on bank capital requirements will have only a tiny effect on global growth, with their latest estimate putting the impact at barely a tenth of the industry’s own projection, http://ftalphaville.ft.com/thecut/2011/10/11/698346/fsb-basel-stand-up-for-new-capital-rules/
Short Squeeze
If you still wonder what is going on with the markets this afternoon, review the chart below (presented earlier today). With Short Interest, the squeeze must happen, as the market does not allow “smart” shorts to profit from falling markets, yet.
Full Chartology
The markets have put on a huge rally lately. With correlations at extremely high levls, pretty much all indices have rallied hard, and now start entering the reisistance levels. With short interest at elevated levels, we won’t be surprised if the markets tops out with a false and volatile break to the upside, in an inverted shake out of shorts, before the leg down resumes. For great reading on volatility, check last week’s post from Artemis Capital Management.
Some charts resemble very much the last nasty sell off in 2008. What many forget, is that actually many indices are rather flat compared to mid August levels. We have been building up dynamics for a big move, that should start occuring soon. Full Chartology below.
SPX
All charts below.
News That Matters
Ft.com
As their chief executives gather in Paris on Monday for the annual meetings of the World Steel Association, the steel industry is bracing for falling prices as buyers delay orders because of nervousness about global economic weakness, http://ftalphaville.ft.com/thecut/2011/10/10/696921/steel-companies-braced-for-price-falls/
Canadian oil and gas explorer Daylight Energy has agreed to be acquired by China’s Sinopec for about C$2.2bn. Reuters reports the deal for Calgary, Alberta-based Daylight is for C$10.08 per share, more than double the closing price of Daylight’s closing price of C$4.59 on Friday, http://ftalphaville.ft.com/thecut/2011/10/10/696866/daylight-energy-agrees-to-2-2bn-sinopec-deal/
BNP Paribas and Societe Generale have denied a report that they could seek to raise a combined €11bn as part of a broader European bank recapitalisation plan, says Reuters. Le Journal du Dimanche newspaper had reported that France’s first and second largest banks by market cap would seek about €7bn and €3-4bn, http://ftalphaville.ft.com/thecut/2011/10/10/696761/bnp-and-socgen-deny-recapitalisation-report/
Angela Merkel, the German chancellor, and France’s President Nicolas Sarkozy spelt out their determination to defend the stability of the euro as they met for a bilateral summit in Berlin, the FT reports,http://ftalphaville.ft.com/thecut/2011/10/10/696826/merkel-and-sarkozy-set-euro-deadline/
Squeeze goes parabolic after the figures. Time to start selling into the resistance levels shortly?
As people buy everything after the Friday figures are out, don’t forget, this is the brutal squeeze we wrote of earlier this week. The moves up are magnified by short covering, and short gamma momos covering positions. The volumes are not impressive, and we are still trading within those “famous” Trend Channels. Let’s see if today will mark the reversal as shorts cover positions in panic mood. Note volatility is getting hit hard in European Trading, as the ES futures is up 100 handles since Tuesday…
ES futures.
News That Matters
Ft.com
The government of Mongolia has backed down from its demand for a larger share of Oyu Tolgoi, one of the world’s biggest new copper mines, in an about-turn that boosted the share price of Rio Tinto, the FT reports. In a joint statement, http://ftalphaville.ft.com/thecut/2011/10/07/695851/mongolia-retreats-on-row-over-rio-mine/
Banks based outside the US could be dragged into the American “Volcker Rule”, which bans proprietary trading, according to the latest draft of the rule and lawyers that were ploughing through leaked copies on Thursday, http://ftalphaville.ft.com/thecut/2011/10/07/695801/volcker-rule-draft-contains-non-us-prop-trading-ban/
George Soros, the billionaire hedge fund manager, has lost a case at the European Court of Human Rights to have his criminal conviction for insider dealing quashed, the FT reports. The failed appeal at announced http://ftalphaville.ft.com/thecut/2011/10/07/695776/soros-fails-to-quash-insider-trading-conviction/
A real-estate fund run by Goldman Sachs has walked away from a $1.26bn deal with Lehman Brothers Holdings to buy a portfolio of 10 office buildings in a suburb of Washington, the WSJ reports. A lawsuit filed Thursday with the US Bankruptcy Court in Manhattan shows Lehman is seeking $100m in damages from the Goldman-run US Real Estate Opportunities fund,http://ftalphaville.ft.com/thecut/2011/10/07/695756/goldman-sued-over-lehman-real-estate-deal/
Essential Chart Update
With Manic Markets, it is crucial to evalue both long and short term charts and levles often. We wrote of the Squeeze set up three days ago. Once again, the markets bounced off the support levels, and fooled too many of the new “smart” shorts. Our long term scenario is intact, and we still believe the big dynamics on the downside will evolve later this autumn. There is a big risk of a Collapse happening, just when everybody is sucked into the long trade, and shorts have given up. For now, let’s review the short term charts, all hitting resistance levels. Let’s just wait for Biggs to turn bullish, again.
SPX
News That Matters
Ft.com
European Union finance ministers are examining ways of co-ordinating recapitalisations of financial institutions after they agreed that additional measures were urgently needed to shore up the region’s banks. Although the details of the plan are still under discussion, officials said EU ministers meeting in Luxembourg had concluded that they had not done enough to convince financial markets that Europe’s banks could withstand the current debt crisis. http://www.ft.com/intl/cms/s/0/b1219a20-eeab-11e0-959a-00144feab49a.html#axzz1Zgu7c53P
Moody’s Investors Service late on Tuesday slashed Italy’s government bond ratings by three notches to A2, citing an increase in long-term funding risks for sovereigns in the eurozone who, like Italy, have high levels of public debt. The move was Moody’s first downgrade of the country’s sovereign debt since 1993, but followed a recent downgrade by rival rating agency Standard & Poor’s. Moody’s now rates Italy A2, which is parallel to S&P’s assessment of single A. Both rating agencies have a negative outlook on the debt, meaning further downgrades are possible. http://www.ft.com/intl/cms/s/0/c5e5de2a-eed4-11e0-959a-00144feab49a.html#axzz1Zgu7c53P
Jean-Claude Trichet has dashed hopes that the European Central Bank will ride to the rescue of the eurozone by pledging to backstop crisis-hit member states. In one of his last appearances as ECB president, Mr Trichet rejected the idea of the ECB acting as lender of last resort to governments. It was up to eurozone political leaders to restore investor confidence in Europe’s monetary union, he told the European Parliament. http://www.ft.com/intl/cms/s/0/07b5a996-ece8-11e0-be97-00144feab49a.html#axzz1Zgu7c53P
The chairman of the US Federal Reserve has accused China of damaging prospects for a global economic recovery through its deliberate intervention in the currency market to hold down the value of the renminbi, http://ftalphaville.ft.com/thecut/2011/10/05/693181/bernanke-criticises-china-over-currency-2/
All news continue.
News That Matters
Ft.com
US car sales rose strongly in September, with gloom over economic prospects offset by consumers’ need to replace old vehicles, easier credit conditions and an improved supply of Japanese vehicles, the FT reports . According to preliminary data, http://ftalphaville.ft.com/thecut/2011/10/04/691716/us-car-sales-rebound-strongly-in-september/
China’s foreign ministry said it “adamantly opposes” a bill being pushed by the Senate to allow the United States to impose duties on countries that undervalue their currencies, Reuters reports. In a statement posted on China’s official government website on Tuesday, http://ftalphaville.ft.com/thecut/2011/10/04/691691/china-criticises-us-currency-bill/
Eurozone finance ministers gave a clear indication they were preparing to paper over Greece’s failure to hit international lenders’ mandated budget targets for 2011, saying they would now evaluate Athens’ performance based on goals that combine both this year’s and next year’s finances, http://ftalphaville.ft.com/thecut/2011/10/04/691651/eurozone-ministers-to-reset-greek-goals/
Global stocks fell to a 15-month low on Tuesday, Reuters reports, pinning Asian stocks near a 16-month low, as investors shed riskier assets on growing doubts over Greece’s ability to avoid default, fuelling fears of global financial turmoil and recession. http://ftalphaville.ft.com/thecut/2011/10/04/691656/stocks-hammered-by-eurozone-and-growth-fears/
And much more below.
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