Bulls secure a “sell the news” bailout as profit-taking trumps headline relief out of Spain. As of 10:50 ET the SP-500 (SPY) is off 0.25% in Day 6 of a rally attempt looking a bit more like the bears confirmed counter-trend rally.
Despite Spain’s Deputy PM denying the country would seek bailout funds for its banking system this weekend and wait for stress tests to be complete on June 21 before taking any potential action, officials apparently couldn’t wait. Saturday’s “real” surprise, as traders on Friday largely scoffed at the notion Spain wouldn’t request aid over the weekend, was a larger-than-expected $125.0B in loan guarantees from the EU.
While this weekend's latest bailout number is a big one, the deal itself is quickly being interpreted as possibly not enough as it appears to reflect more of a “strategic and tactical” temporary fix versus a “comprehensive ECB nuclear bailout option” according to one portfolio manager spied in an interview with Reuters. As well, one need only look at the costs involved, other potentially looming Debt PIIGS obligations and Greece’s upcoming June 17 re-vote, and realize the road to Rome and a new financial empire to be reckoned with, have yet to be constructed.
In those intertwined markets of notice and despite weekend headlines proclaiming “US Stocks to Receive a Lift Monday” bulls have taken an out-the-gate “relief bid” and exercised their right to “sell the news.” Aside from last week’s “best in 2012” bid into potential zone resistance, already well-neutralized to bullish sentiment managed to strike complacency readings this morning in the VIX ($VIX). While testing its Bollinger and 50SMA for potential support and striking a one-month low, session lows of 19.5% stretched to nearly 17% below the mean-reverting 10SMA.
For its part and showing similar buyer’s remorse, the EUR/USD is off 1.0% as traders wake up to the realities of the massive fiscal challenges for the euro’s economies and whether the currency will survive those threats. Intraday, price action in the currency pair has given back all of Sunday’s bid and is shaping up as a bearish two-bar reversal pattern within a daily flag pattern.
Similarly, Eurozone ETFs for Germany (EWG), Spain (EWP) and Greece (GREK) are all sporting losses of about 1.0% to 1.5% and also offer a stark contrast to Monday’s opening Valkyries theme song bandied about by bulls. In contrast, the US Dollar (UUP) is finding a modest fractional bid of 0.05% but reversing handily intraday within its near-two week bullish consolidation.
The US Oil Fund (USO) is off 1.35% and leading to the downside with investors obviously concerned about weaker demand and slower global growth. Technically, its weekly inverse cup with handle pattern looks to challenge its October lows which are still some 8% beneath current prices.
And one heavyweight helping bulls to not lose it completely, the iShares Bull ETF (AAPL) is up 1.15%. Monday’s bid looks largely technical as AAPL stock is holding 50SMA support after gapping above the resistance line for the first time in more than a month. Monday's varietal of green comes despite a lack of price drivers for bulls, though in front of a Worldwide Developers Conference to begin later this afternoon.
Finally and in those sometimes accurate heat-seeking option markets, traders appear to be heeding some of Goldman Sach’s cut of AK Steel (AKS) from “Hold” to “Sell” with implieds ratcheting higher and puts finding favor by a narrow, but in the lead margin of 1.10-to-1.0 over calls on heavy overall volume of 8,400 contracts. Intraday, shares are testing their November 2008 lows near the important $5 marginable securities threshold.
Most active, but not speaking really, really loudly about trader’s intentions, the in-the-money June 6 and at-the-money July 5 puts have put together volume of 1,800 and 1,050 compared to much larger open interest of 7,200 and 5,600. After a bit of print sleuthing, no diagonal spreads suggesting the rolling of positions “out and down” but likely “up” at the same time, have been spied much to the chagrin of one analyst always looking for the footprints of the really smart money.
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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