Daily Market Brief

Greek Swing

greekOi. In case you haven’t noticed there’s this Greece thingy going on and every day markets get jerked around by at least one or several headlines. And it’s only going to get worse this week. I’ve commented on the macro case this weekend so I won’t rehash it here, but basically here’s what we’re facing this week:

4 Fed speakers. Draghi and ECB on Wednesday, and a new Greek rumor any moment of any day. Unfortunately these rumors create massive ramps/dumps out of the blue. It’s idiotic, but nevertheless that’s how it’s playing at the moment. This morning we are also facing early month fund inflows and buybacks and overnight we saw a big China rally on weakening PMI data. You know the gig.

Basically what I’m seeing for this week is a really tricky environment, but one that may hopefully set up for a swing trade off of any Greek news.

You know my opinion: Ultimately they will have a deal even if it’s completely bogus just so everyone can save face and pretend it’s one happy currency union. Why? Because the alternative is more expensive and so they will do what they must and in the meantime create a massive rumor circus to make sure everyone looks tough and gets something for their constituency. All BS, BUT very real when it come to price action on the tape.

Ultimately what this means, I suspect, is that there will be a massive relief rally, cause there always is. It seems people are already positioned for such a rally as sentiment indicates people are 75% long the #DAX.

And this is the risk, at any time some rumor may crank the $ES up 10-25 handles on some Greek deal event. Not fun to be positioned against that. Could anything go wrong? Not on this planet. Still nothing breaks down and the yo yo dance continues. However, I still see a massive bear flag on the #DAX and let’s face it: Nothing has really gone well for Draghi ever since he got showered with confetti.

So the ideal scenario I see is that this Greece situation ultimately produces a scary moment, one that forces all parties to hash out that bogus deal. Typically these things drag out to the last minute until someone is forced to blink.

And therein lies the opportunity for a swing long. Fear spikes (fear? what’s that?) can create all sorts of unusual moves and in my view such a fear spike may set us up for a solid swing low on the DAX. My ideal level: 10864 or so. The confluence of Fib retrace to October lows and the 2011 highs are obvious:


The next key level resides in the 10382-10600 zone.  All this would set us up for a 14% to almost 20% correction off the highs. Definitely something I want to buy. For now all this is fantasy talk, but I want to keep these levels in mind in case bricks actually start flying.

All this brings me to several questions I received last week on how I choose my entries. I’ll use the #DAX short from last Friday as an example and it pertains to the process I outlined in this weekend’s write up as well.

I came in with a trade premise to short the #DAX based on the repetitive bear flags we identified:


However, the ongoing Greek rumor machine also clearly signaled one had to be very tight with shorts and my position was flat stopped. Sure enough we got a Greek related news flash that ramped the $DAX over 100 points in minutes.

Now how does this make it a trade? First I noticed the #DAX had obvious resistance at the previous flag break down at 11660, so when price hit there I entered a #DAX short and got filled at 11650, I also had a tight stop but moved it to flat at the earliest opportunity. Second, the nature of the rumor was plain bogus and little substance to it, hence I deemed the ramp to be an algo chase only.

And fortunately the price action following confirmed the trade premise:


Now note: You can’t plan a trade like this far in advance. It’s a judgement call one has to make in this choppy environment. And clearly these type of trades may not work, but this is why we use stops and then scale out which we did on Friday. But this is the nature of the beast right now. Sudden ramps or dumps.

In fact in overnight action I closed longs and flipped long. The price action is erratic and as traders we are forced to make judgement calls.

But I illustrate this trade as an example of the type of considerations I use to identify trades.

This month then has some potential from the short side, but also high risk for new highs based on the Greek resolution. What are the odds they reach a Greek deal during OPEX week? I’m just throwing it out there 😉

As no new lows were reached in overnight (so far) I’m dabbling in the long side assuming the ramp machine will go back in full gear for beginning month inflows and buybacks. There’s a gap at 2122 and we may levitate back up to that level although I’m keeping a close eye on these trend lines here:


Mondays have lent themselves to sell strength into Tuesday and I’m looking to do this as I see a sell window (assuming no magic Greek deal) into Thursday next week for a low the week before OPEX:

june seas

I’m not placing much weight on seasonality stats these days, but I’m recognizing that we tend to have strength in the first day or two of the month.

Note too that a June spike higher by OPEX also plays well with the larger annual seasonality:


In short: Hopefully we are getting a long swing on the #DAX in the next few days and a buyable 3-5% dip (sigh) on the $ES. Remember the big buy zone is 1940-1970 on the $SPX, but unless something breaks we may not get that until September/October. But, hey, I like surprises.

One comment on “watch what they are doing”: May was the largest month for M&A in history. We are also seeing massive increases in margin debt, and of course buyback announcements. What does this mean to me? The corporates know the party is coming to an end and they are using their capital, eh stock prices, to gobble up highly valued companies with shares in order to augment their growth stories for when things cool down. We all know there is no sales growth and economic data remains weak. When rates go higher then the buyback game ends. They all know it. So buy companies, incorporate their growth projections, lay off people to create efficiencies…etc..

Big M&A activities marked the tops in 2000 and 2007 and so did large margin debt and buybacks. Welcome to a 2015 repeat?

Bottomline: I’ll now aim to run longs a bit higher today and aim to flip back short into key resistance either today or tomorrow. That’s as far as I aim to see right now, but I hope we finally can see a swing trade set up for 2015.

Update: As I’m writing this another Greek rumor hit the tape and the $ES flew up 10 handles. Well there ya go, get used to it it’s the flavor of the week.


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