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Comfortably Short: Thursday Technical Review

  • Written by Syndicated Publisher 48 Comments48 Comments Comments
    November 4, 2011

    We think we have it bad in the US with our leaders. Imagine living in Greece. Referendum is on, then off. G Pip is resigning then he is not. He’s negotiating with the opposition then he’s not. Seriously is there any shock that Greece is in such financial trouble.

    My apologies to any Greeks. I don’t mean to mock your country. It’s a sad reality of the state of leadership or lack thereof in our society. That was just utter nonsense today.

    The rips up and down in equities was also utter nonsense. What was setting up for a nasty down day based on overnight future action was slowly reversed on what very likely was a telegraph that the ECB would lower rates. Contrary to what other sites may say today’s ramp was not about Greece. No it started at 3AM ahead of the ECB announcement and was a slow methodical grind.

    With the absence of participants beyond day traders and high frequency traders this market drifts independent of news and reality. Trying to explain an irrational market in rational terms is a futile effort. Anyone who thinks this market is truly bullish and rational I wish them the best. Bull markets do not behave like this. All this price action does is exhaust everyone emotionally and financially.

    On that note I want to share how I view the current market aside from today’s side show. It’s the only rational way I see of writing today’s post.

    The Target – Ten Year Yield VS SPX

    This simple chart keeps me short. Call it the target of sorts. When the divergence closes the goal will have been achieved. I’m investing in what I see.


    Short Term Indicators – Why I am comfortable staying short

    High Yield Debt (risk on) VS TNX (risk free bench mark)

    tells me risk is very stretched right here.


    EUR/USD VS ES Futures

    Currency pair not following the ES higher



    Notice the larger percentage move in the SPX VS the Vix. That’s not normal.

    Additionally as discussed earlier the skew is also elevated (read post here).

    Bottom Line

    Do I look like an idiot here? Yes. Do I care? No. Wall St preaches to buy when their is “blood in the street.” What about selling when their is euphoria in the air? Regardless of what they say, above is what I see and thus how I aminvested.

    Greece is not over. No that chapter just got started. MF was not limited to just MF and probably not JEF. Italian bund spreads are reaching crisis levels. Bernanke downgraded the economy and took QE off the table. The ECB put a 50% chance of recession in Europe (they are always conservative). If other markets were telling me I was wrong I would end the trade. They are not so simply I stay short.

    Images: Flickr (licence attribution)

    About the Author

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