Desayuno with Distressed Volatility for Monday 7/19: First off here are a few news items mostly from my Twitter feed. These events aren't affecting Shanghai, EUR/USD or US index futures so far.
1. BP down 5%+ as FTSE opens, concerns over seepage detected near damaged well - @SkyNewsBiz
2. Hungary Forint Tumbles Most in Six Weeks as IMF Ends Talks With Hungary - Bloomberg
(*Here is Hungary CDS Quote at Bloomberg.com)
3. Ireland's credit rating downgraded by Moodys to Aa2 - Irish Times
(*Here is Ireland CDS Quote at Bloomberg.com)
4. Man buys Europe’s entire cocoa supply, analysts suspect market cornering - National Post
I saw that the 30Y Treasury Bond and US Dollar Index decoupled since mid-June. $USB is up 9.95% and $USD is only up 1.90% over 3-months. The US Dollar Index could eventually test the 200DMA and perhaps bounce at the March high. It's still trading in a descending channel with 50DMA resistance up above.
Relative strength is at 28 (weak) and the MACD crossed below the mid-line a month ago. It crossed above the mid-line when it bottomed in December. But why are they decoupling? I'm reading conflicting view points (risk is back, slower US growth, deflation etc). I asked the question too late on MacroTwits so if you have an opinion please comment.
30-Year US Treasury Bond Price ($USB)/US Dollar Index ($USD) - StockCharts.com
$US Dollar Index ($USD) - Stockcharts.com
The iShares 7-10 Year Treasury ETF and the 10 year Treasury Note broke above resistance last week. The 30-Year Treasury and 20+ Treasury ETF have yet to achieve that goal. Do 10-30Y spreads widen from here or roll in tandem. Right now The 10Y Note future is +0.34% and 30Y Note future +0.02%.
IEF (iShares Barclays 7-10 Year Treasury Bond ETF)
TLT (20+ Year Treasury Bond Fund ETF)
$UST (10 Year Treasury Note Price) broke out, manage reversal risk
$USB (30 Year Treasury Note Price) at resistance
SPY Technicals: The S&P 500 ETF took a dive last week at resistance and at this point there are 3 major resistance levels to keep an eye on: 1) Downtrend line from April, 2) 50 day moving average and 3) 200 day moving average. RSI is in a channel below 50 and the MACD is under but approaching the mid-line. The MACD is converging with SPY's lower lows which could be a contrarian indicator but watch the mid-line.
Looking at price specifically, SPY closed Friday at $106.66 and could attempt to re-test the February low / flash crash low for the fifth time at $105. If $105 fails again it could be a decent hedged short to $102 (7/2010 low) imho with a possible glide down to $93.3, the 6/2009 plateau. There could be a head and shoulders pattern forming (potentially bearish) or a stupid sideways trading channel from $102-120 to end the year. The chart does not look healthy so I wouldn't be surprised to see an overshoot to the downside.
SPY (S&P 500 SPDRs ETF) - StockCharts.com
The Copper Futures - Comex chart looks similar to the S&P. It could re-test 270s. The downtrend and MAs are important for bullish bias.
Last but not least the VIX/S&P. The VIX spiked hard core during the flash crash ($115 and 50DMA breach). The VIX seems to be in a normal state at the moment relative to the S&P. The VIX closed down 42% from the May peak, so the fear premium has come in a bit. A $105 breakdown would probably spike her back to the 30s-40s.
$VIX (Volatility Index New Methodology/$SPX
That's about it. I'm also watching Ford and GLD as usual. I'll provide a few charts and option info on Ford in a few hours. I see futures are still up.
Post on last week: S&P 500 Failed at Death-Cross, Deflation Bid Rules Week $TLT, $IEF, $SPY, $QQQQ, $GLD, $UUP Charts, Links