Short Opportunity Of A Lifetime?

Well, it's been two weeks since I gave the two-week notice for the bears to wait.  The rally of 7% in the markets last week went further than I expected above the 50-day moving average.  I think there was some leaking of information on Monday that contributed to the big moves on Monday and the public announcement on Wednesday of the coordinated central bank global dollar liquidity.

However, the S&P did not cross the 200-day moving average (1265) convincingly.  A failure to close above the 200-day signals that there's a strong possibility this is the opportunity that the bears have been looking for!  Last week and today were excellent opportunities to open shorts and buy puts of  >3 months.  As banks and other institutions hedge their bets of a failing euro and eurozone, the cascading dominoes of self-preservation will fall.

If by some miracle, we close convincingly above 1265, we may need to reevaluate.  But for now, this looks like the short opportunity of a lifetime.  Today, the S&P is rumored to put all euro zone countries on negative watch this evening.  And so it begins...  We'll have to see how the markets act this week up until the summit on Friday.  A failure to reach any meaningful agreements with adequate details could spark an ugly Monday next week.  Grab your popcorn.  It will be an interesting week.  Although the Dow closed up 78.41 to 12097.83, the VIX was up 1.16% to 27.84.

Europe Out of Control

Italian two-year bonds hit a record 7.82%!

Euro-debt problems getting out of control.  Greece looking for 75% haircuts.  Germany not backing eurobonds.  Spain 10-years were at 6.57% this week.  Disaster of German bund auctions (only 60% demand).  National pride issues starting to crop up as friction between European countries.  Belgium downgraded by S&P from AA+ to AA.  Dexia deal is in trouble and more banks could fail.  The eurozone is falling apart!

Bank recapitalizations sure to cause heavy selling into the first half of 2013.  I expect a further downward in the markets.  Along the way down, we make spike up to a lowered 50-day moving average.  Then. we have the big failure there to a crash of undeterminable proportions.  Clearly, the trend is down, though.

Super Uncertainty ^ 2

Well, looks like the next catalyst down might be the US Super Committee's failure to get a deal done.  Today, the Dow sold off over 340 points but then rallied to close down 249 to 11547.  There was a rumor from Max Baucus that the Super Committee still has a few hours before announcing that a deal is dead.  Not holding my breath, but you never know.  The S&P closed down 23 to 1193.   We have now closed below 1209 and await the Super Committee's results.  A break below S&P 1185 on Super Committee's news would be very negative.

Over the weekend, Spain voted a change in government.  Mariano Rajoy is now Spain's new PM.  With a 23% unemployment rate, this news doesn't change much of the reality of lack of growth to get out of debt.

There were also fatal clashes in Egypt.  The Egyptian cabinet resigned Monday night. 

Uncertainty x Uncertainty = Uncertainty ^2.  Not a good situation for investors.  One bit of "positive" news was that the VIX didn't rise that much today as one might expect (up 2.84% to 32.91), so we'll have to see if we break down from here there's a bit more upside before we crash.  A global sell-off, broad-based similar to today, will take down just about everything but cash and shorts.  Stocks can fall much faster than they rise, so there could be an excellent opportunity to make some money here if you're short or want to average in on the way down.

Bears - Give It a Couple Of Weeks

Another light volume day.  Not much movement or much news.  Europe holding off news before Spanish elections this weekend.  Dow closed up 26 to 11796.23.  S&P closed virtually flat at 1215.72.

Looking for a close below 1209 on the S&P to see conviction in the selling.   I give this market two weeks to start to crumble in a cascading manner.

Italian banks may need another $8.2 billion in capital.

Super Committee results next week.  Spanish elections over the weekend.  ECB ruled out as lender of last resort.  IMF previously ruled out as lender of last resort.

France's AAA rating potentially downgraded soon.

Have a great weekend!

Clash of the Titans

Continued selling on light volume.  Dow down 134.33 to close at 11771.26.  S&P down 20.69 to close at 1216.22.  Surprisingly strong support for the S&P at 1209.

European fears are growing.  The crisis is spinning out of control, and the politicians continue to be way behind finding any credible solutions.

Spanish 10-year bonds yielding 6.975% vs. 5.986 in July. 

Spain's finance minister Elena Salgado says that the ECB must keep on supporting government bonds by buying them until some other instrument is put in place.  Well, the problem is that the Germany has been adamant that the ECB doesn't want to be the lender of last resort.  France and Germany are clashing on the ECB's rescue role.  The IMF has already expressed that it doesn't want to be in this role as well.  So, I guess nobody's going to do it.  Merkel has already been reluctant to do Eurobonds, and these would take too much time to develop and implement.  The EFSF is nowhere in sight or sound.

Although we have new governments in Greece and Italy, protesters in both countries took the streets today to protest austerity measures, again. In New York, Occupy Wall Street (OWS) protestors took to the streets marching on the NYSE.  There was literally blood in the streets, as protestors clashed with police.  Protestors were injured, as well as the police.

In the US, there are rumors that the Super Committee is deadlocked again.  In France, there are rumors the actual downgrade of the AAA rating is imminent, for real this time.

So, the global economy is unraveling, and there are no credible solutions in the US or across the pond in Europe.  Politicians are scratching their heads while Rome burns.  It seems that the only time any real action will take place is when it's already too late and the situation has reached catastrophic proportions.

Europe Waking Up To Harsh Realities

Seems like the Europeans are now starting to wake up to the harsh realities.  The pressure they're feeling is causing them to pass on the pressure where they can:

Janus "two-faced" Merkel is saying that Germany is ready to cede some sovereignty to the EU.  Germans are not going to like this.  She is also saying the the ECB doesn't have the possibility of solving the euro problem.  What?!  What happened to the "grand plan?" Oh that.... There IS no plan.  Surprise, surprise.

So, as you might expect, countries might get "pushed" out of the euro.

Italy's biggest bank, Unicredit, is seeking broader ECB rules.  Who said there wasn't going to be another Lehman in Europe?  There are definitely failure concerns.

France's second-largest bank, Société Générale SA, plans to cut "several hundred" jobs in 2012.

Forget deflation, WTI crude oil hit 102 today. More pressure on the global economy.

George Karatzaferis, head of the LAOS party, and Antonis Samaras, head of the New Democracy conservatives, have both refused to sign pledges to implement harsh austerity measures.  Refusing to put signatures in writing is putting the Greek bailout at risk.  Seems like a pretty expensive risk, two signatures for 8 billion euros.

European leaders are playing with fire, and Rome, nay, the world, will burn...

Fitch in the last hour of trading says that the credit outlook U.S. Banks  could worsen if the European crisis is not resolved in a timely and orderly manner.  Dow plunged 190 points to close at 11905.97 at the close.  S&P down 20.29 to close at 1236.92.  Euro went down .51% to 1.347.  If the selling continues, tomorrow could be UGLY!

Monti's Cabinet - Pandora's Box?

Well, the market had another low volume melt-up day.  We lost some momentum going into the close, so the Dow closed up just 17.18 to 12096.16.  S&P up 6.03 to 1257.81.

Italian 10-year bond yields topped 7% again.  The market rallied on news that Monti is assembling his cabinet to reveal to President Napolitano tomorrow.   Let's just hope this cabinet is not Pandora's Box.

The EC is cracking down on ratings agencies, Moody's, S&P, and Fitch.  France's AAA rating is looking vulnerable (already trading like AA+), so I'm sure the EC wants to do what it can to gain influence over these agencies as well, for perception reasons.

The EUR/USD dropped to 1.3532, so euro confidence weakening.  VIX is at 31.22, so fear is still relatively high.

Feels like we're bracing for everyone to wake up one day and realize the truth that, "There is no spoon," or there is no short-term solution to the Eurozone problems.  These debt problems took a long time to build, and will take a long time to resolve.  In the meantime, there will be a lot of pain.  Implementing austerity measures is just the start, if the new Greece and Italy governments can actually execute.