Markets Tripped Up By "Diesel-Bomb"
The Cyprus debacle was temporarily remedied by a bank restructuring vs a bailout. The bottom line is depositors with over €100K would see deposit confiscation. Theoretically, this would mostly affect Russian oligarchs with money laundered deposits. You had to accept this as the case even though there would be Cypriots with deposits in that size. But they were deemed just so much collateral damage by both the Cyprus government and EU. This was all seen as a positive in the eurozone and the U.S. in early trading Monday. Then along came a statement from EU Head, Jeroen Rene Victor Anton Dijsselbloem (a mouthful to be sure) or better known as “Diesel Bomb” to the street, which undid the early rally. The statement: The Cyprus solution will serve as a template for future EU bailouts. That was like a bomb to equity markets since it threatened deposits in other troubled banks in Italy, Spain and others.
After seeing the damage his comments did to markets, Diesel Bomb quickly retracted them denying he made them, even though they were made before FT and Reuters.
“Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday. Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used.”
Bernanke got tapped on the shoulder regarding Cyprus and the eurozone situation while speaking in Europe and merely said: “The situation in the eurozone is mixed.” Those words meant little frankly.
After walking back Diesel Bomb’s earlier statement markets recovered some. But as some were quick to point out, the first statement was probably a slip of the tongue truth.
“Risk Off” was back once again as the dollar (UUP) and bonds (TLT) especially rallied. Gold (GLD) ended only slightly lower after being pummeled early. Commodity (DBC) markets were mixed as higher oil (USO) were offset by virtually everything else.
Active stock sectors lower were financials (XLF) on contagion fears from the eurozone (IEV) and (FXE) and homebuilders (ITB). Stocks closed only modestly lower as another late day “stick save” followed the now epic Diesel Bomb retraction. For the ETF Digest as the week began we were 40% in cash.
Volume was higher on selling which is typical as trailing stops get hit. Breadth per the WSJ was negative.
SPY 5 MINUTE
The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.
The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.
The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.
Well, that was a fun day, eh? Spills and thrills the whole day long.
Importantly, it’s the end of the quarter and performance bonuses are on the line. So any excuse to rally is built in to conditions.Tuesday features Durable Goods, Case-Shiller Home Price Index, New Home Sales and Consumer Confidence. These are market moving indicators.
Let’s see what happens.