Monday, July 06, 2009

Monday Morning Musings

Good Monday morning. My regularly scheduled Sunday evening wind down was interrupted last night by a trip to the emergency room with my 5-yr old daughter. But after a couple of hours, and 5 stitches to her chin, everybody was back home safe and sound. Just a little more tired this morning when my alarm went off at 5am. Getting up that early is for the birds.

The market is lower this morning, as selling pressure from Thursday seems to have continued into today's session. Although Friday saw a steep selloff, volume was extremely light, which shows a lack of conviction in the selling, even as trading was light ahead of the holiday weekend. Interestingly, the put/call ratio jumped back above 1.0 on Thursday, which means folks are jumping on the bearish bandwagon quickly again.

There was a good economic report today, which showed the June ISM Services Index rose to 47.0 (vs. 46.0 consensus) from 44.0 in May. While the manufacturing index gets more attention, the services component of our economy is much larger.

The dollar is higher today, after the German Financial Minister said the U.S. dollar will keep its role as the leading reserve currency. The strong dollar is pressuring commodities, with oil back down below $65, and gold trading lower as well.

Asian markets were lower overnight, led by India where reports that their deficit could grow worried investors; the 10-year yield is higher to 3.52%; and the VIX is spiking another +8% higher back above the 30 level. It will be interesting to see if the VIX breaks above this long downtrend that has been in place since March.

Trading comment: The S&P has now been down for 3 weeks in a row. I covered more of my shorts this morning, and took partial profits in some of our etf hedges (DUG, SDS). I said for a while that I wanted to get more hedged as we got into the July/August timeframe, and that hasn't changed. But with the SPX testing its 200-day, and slightly oversold, I would not be surprised to see a bounce this week.

That said, the action looks to me like the SPX will probably test the 875 level that we were watching closely back in May. That level might provide a better buying opportunity. Big picture, I think the market will likely be choppy at best this summer.

long DUG, SDS


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