Living Inside a Broken Clock: Tuesday, Feb. 9, 2010

Europe is between a rock and a hard place. If they bail out Greece, then there are the other players in the GIPSI and STUPID entourage just waiting to dive into the trough. If they don’t, Europe will have to hope that the Greek politicians do what is right and not what is expedient. The European Investment Bank says that it cannot participate in bailouts for members to deal with deficit or balance of payment problems. At the same time, it seems that GS is following the same algorithm that they did with AIG. TIck. Tock. Tick. Tock. They are doing God’s work, after all.

EQUITY

It seems that the carry trade is painfully and slowly unwinding and driving a lot of what is happening in the risk markets. I’ll just note that DXY is down this morning, and ES is up.  SPX closed yesterday below the “Since Oct 2nd” trend line. On Friday, it put a pin through the TD support level at 1046.50. That was just a gentle kiss. At some point, this relationship will be consumated. 

When I look at the daily ES, I have a channel that runs from the peak on Jan 11th, to the bottom on Jan 22 and October 2nd. Puttin’ on the FIBs against that channel, shows that the 162% FIB is suport and the 150% FIB is resistance – these are upward sloping, and ES is just above the 150% FIB as I type. If this turns into support, then the 138.6% FIB is at 1072 [Changed from 1168 which was an error]. It also looks like the ES got stopped by the 5 DMA, which is at 1067.60

Overnight, Asia was mixed (Japan and Australia were Red – rut roh), and Europe is also mixed. The DAX is barely green. The CAC is red.  Eyeballing the DAX shows a bottom put in around 5450 and an attempt to move up with higher highs and higher lows happening over the last 3 trading days.  DAX = 5515 appears to be a lwel of resistance, but it is soft.

ES pushed it’s way up off of the lockup yesterday evening to run into both a pivot and a TD resistance level around 1065.50ish. There is TD support below near the other pivot at 1059ish.

• R2: 1074.75 =  Kind of where the waterfall from Feb 4 began to level off.
• R1: 1065.50 = Currently the roof, supported by TD resistance just above it. TD Pressure is showing a low risk sell (right now – doesn’t last long).
• Neutral: 1059 = The floor right now. ES went through it easy on the way up overnight.
• S1: 1050 = Looks like a support leel from Friday – but hasn’t been really tested hard.
• S2: 1043.67 = An imaginary point leading to the gates of hell.

FX

USD is tanking, and EUR is running up. All of this revolves around speculation as to what will happen with Greece. CAD is stronger, JPY is weaker. EUR and GBP are stronger.

Not much else to add. The DXY / SPX inverse correlation appears to be alive and well at this point in time. I think that volatility will grow as the carry trade looks to get out of their positions, private parts intact.

NEWS

German CPI is still down MoM, but the Trade balance was above expectdations. Credit markets are pricing in very very low rates of default – especially for junk. Bankers are trotting out more securitizations of toxic waste – probably will wind up on the FED’s B/S. Portugal is going to try to issue 10 year bonds in Euros. This looks like a good coffin nail to me.

Meanwhile, all the hot air about global warming leads to even more snow coming to D.C. Is Al Gore speaking there?

Data

Nothing of note, IMO. Go see at Briefing.com

That’s about it. I played some FX profitably yesterday. I don’t know what I’m going to do today, since I’m still feeling a bit out of sorts. The DXY trend is up. SPX trend is down – so I don’t feel comfortable going short DXY or long SPX – but my delirium and fever may lead me there anyway. heh.

Cheers.