Bulls continue to test for technically unlimited upside and sterilized historical tendencies following a critical hurdle for the ESM. As of 11:45 the SP-500 (SPY) is up 0.30% and doing its darndest to promote the idea that this time really is different.
From across the pond, the first of three potential obstacles this week for bulls, has gone off without a hitch. Germany’s Constitutional Court struck down an injunction on the European Stability Fund indicating the monetary facility isn’t in violation of German law. The decision looks to clear the way for a conditional launch of the ESM, though a final verdict pegged for December, still awaits approval.
Separately and within the region, the EC President was spied rallying political support around the Eurozone banking union plan. And Spain’s PM stated he would be carefully monitoring the country’s bond yields to determine whether a bailout is required.
Spanish yields, much to the relief of the distressed country, have slid aggressively lower the past few weeks towards 5.6% and well below the financially unsustainable 7.0% threshold cleared back in early August.
Elsewhere and lurking beneath the radar, investors are awaiting further unscheduled, but imminent updates on Greece’s pow-wow with the Troika regarding its progress. Also, the FOMC’s latest decision on interest rates and more importantly, any shifts in officials language or actual actions regarding QE3, will be unveiled on Thursday.
In those intertwined markets of influence, the EUR/USD is up 0.22% and extending its key breakout this week through intersecting channel resistance lines and its 200SMA as bulls rally around today’s ESM decision.
Eurozone country ETFs (EWP, EWI and EWG) are flashing overbought-looking gains of 0.85% to 5.5%. The action is led by a bid in the Global X FTSE Greece 20 ETF (GREK) as bulls put on an optimistic game face, rather than feign concern over uncertainty tied to the Troika.
The US Oil Fund (USO) is flat on the session and trailing the broader market’s bid. For the bears, weekly inventory data this morning showed a surprise build of 1.99M barrels compared to forecasts of a 2.8M drawdown. As well and technically speaking, shares of USO remain a laggard beneath its 200SMA and a potential bearish canary in the oil patch.
Money continues to get pulled out of the 20-Yr (TLT) in front of the Fed’s decision on Thursday. Shares of TLT are off 1.10% and nearing a test of its August lows and second challenge of its 200SMA for support. The action suggests investors bracing for more of the same, “standing ready to act” language rather than action, as well as a continued willingness to rotate capital into riskier assets still viewed as less so these days.
And the Dow Jones Transports (IYT) is up for a fifth straight session and by 0.50%. Technically, the still-lagging vehicle is serenading bulls with its “All Aboard!” breakout through 50 and 200SMA resistance this week, but one still challenging bearish symmetrical triangle resistance.
Finally and in those sometimes accurate heat-seeking option markets, the VIX ($VIX) is off about 2.4% but remains near 16% for a second session and just below its 10 and 50SMAs. Price action in the Fear Gauge is trying to diffuse Monday’s short and longer-term complacency signals which saw a 10SMA differential in excess of 15% and the spot within one point of its August and five-year lows while striking nominally cheap historic levels.
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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