Your MUST-READ Morning Stock Futures Cheat Sheet: Drifting higher on a holiday

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The Precise Take – Drifting higher on a holiday

Big Picture Analysis:   After a relatively quiet open Friday, ratings downgrades on Italy and Spain facilitated a selloff in the US indexes.  However, Thursday’s closing VWAP and the weekly pivot in the ES found buyers and trading proceeded range bound for the remainder of the day.  With the bond markets closed today, we might expect a quiet day unless something dramatic happens overseas.  Bulls retain short term control as long as the trend channel on the 60 minute chart below is respected.

Chart in Focus:   Since we’re limiting the trading commentary due to the near-daily headline risk, this will be a new section to fill in the white space.  Below is a chart that represents the year over year change in the Federal Reserve’s Custody Account, which contains the securities the Fed holds on behalf of foreign official institutions, such as China.  Shown are total securities (red) and the constituents: Treasurys (blue) and GSE Agency debt and MBS (green).  Since Operation Twist was announced last month by the FOMC, we can see foreign states have been dumping Treasurys.  This should temper the view of those who are looking at the selloff in T-Bonds and Notes (and corresponding rise in yields) as risk-on.  In addition, elevated volatility has made index puts and related hedges expensive, and Treasurys have been a very profitable alternative hedge for equities over the last few months.  Once it is apparent the Treasury hedge no longer “works”, not only will this exacerbate the selling in Treasurys, but it will put pressure on stocks, as funds must pay more for insurance.

Today’s  Scheduled News (all times EDT)

Major Market Movers
None – US Holiday – Markets Open

Minor Market Movers
None

Tomorrow’s Scheduled News

Major Market Movers
None

Minor Market Movers
None


Click above images for larger charts.

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