Greek gridlock and tied at the hip, raised credit market and Eurozone concerns keep bulls on the defensive to begin the week. As of 11:30 ET the SP-500 (SPY) is off 0.60%, but cutting “sell in May” losses in half with some “go away” bargain-hunting interest.
Following overnight pressure out of Asia and Europe, US markets are under pressure Monday led by Greece’s failure to secure a coalition government. With the impasse, new elections are likely to produce a political win for the country’s anti-austerity bloc and a break; albeit far from a clean one, from the Eurozone, which in turn has raised concerns about the stability of the Euro.
Also on the radar and akin to an obstructive iceberg of bad news for bulls hoping for clear passage, German elections this past weekend reflected growing anti-austerity support and waning backing for Chancellor Merkel’s Christian Democratic Party.
Separately but intertwined, raised concerns of Spain upping its reserve requirements for member banks to guard against increasingly risky real estate loans haven’t helped matters. And weak industrial production data for the Eurozone which showed an unexpected dip of 0.3% has affirmed the region is once again, beset by a recession in front of Tuesday’s Q1 GDP report.
And from across the other pond, China’s central bank has loosened the reserve ratio for its banks to mixed reaction after a pair of reports on industrial production and retail sales showed weaker-than-forecast growth this past Friday. The move marks Chinese officials’ latest effort to manufacture a soft landing and underscores a wholly different, but entangled, monetary dilemma for the world’s second largest economy versus Europe’s current financial snarl.
In those intertwined markets of influence, the EUR/USD is off 0.38% to 1.284 and striking its lowest levels in four months. The move follows last week’s bearish technical breakdown of descending triangle support and looks to set up an eventual retest of the currency pair’s January lows near 1.26.
The iShares MSCI Germany Index Fund (EWG) is off 1.85% and narrowly hitting similar four month lows. Technically, the action is confirming a break below the 200SMA and a small consolidation developed on the heels of a neckline breakdown last week. The Global X FTSE Greece 20 ETF (GREK) is off 6.25% and at fresh lows, while the iShares MSCI Spain Index Fund (EWP) are off 2.25%.
Flight-like moves into the Greenback (UUP) and 20-Yr (TLT) are establishing bids of 0.35% and 1.33% and fresh two and four month highs respectively. Conversely, Monday’s dour sentiment has allowed the US Oil Fund (USO) to hit fresh 2012 and six month lows with its loss of 1.30%, while dollar and economically-sensitive silver (SLV) is down about 2.10%.
Shares of JP Morgan (JPM) are off 2.0% after gapping below its 200SMA which stymied Friday’s 9.28% technical ouster. The pressure follows last Thursday night’s admitted, “egregious (trading) mistakes”, downgrade by credit ratings outfit Fitch late Friday and Moody’s chiming in of its trading loss being a “credit negative” for bondholders.
In sympathy, shares of Goldman (GS) are off 1.50%, Citigroup (C) and Credit Suisse (CS) are off about 2.50%, Deutsche (DB) is down 3.25% and Morgan (MS) is shedding a rough and tumble 3.65% as traders wager which other A-list banks might be next to the credit market confessional.
And the CBOE Volatility Index ($VIX) is showing investors are back in a somewhat agitated state of concern. Intraday, the sentiment gauge is up 6.30% at 21.15%. Monday’s bid has narrowly eclipsed last week’s fearful highs, though its stretch of about 13% falls short of confirmation of another short-term signal of excessive fear by a couple points.
Given the continued technical deterioration in the broader market; we’d be much more cautious, versus last week, in assigning bullish importance to any fresh VIX Stretch signals which might be generated near current levels in the SP-500 as sub 22% highs aren’t impressive in historical terms for marking bottoms in the market.
Finally and in those sometimes accurate heat-seeking option markets, a bounce in Chesapeake Energy (CHK) following word of the beleaguered oil and gas play obtaining a $3.0B unsecured loan from Goldman and Jeffries has option traders attention. More than 140,000 contracts have changed hands compared to its 50SMA of 62,000.
Puts are favored by a 1.65-to-1.0 margin over calls with the highest concentration of activity found in the June 17 put on volume of about 16,000. What’s behind those wagers however is hard to ascertain as implieds have seen fairly stiff pressure but remain well-elevated statistically and just removed from Friday’s multi-month highs tied to news of a delay in filing its 10-Q report. In the end, it takes two to consummate the trade—and in this situation, maybe a good one to think more like a hedgehog rather than an overt bull or bear.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
