Over the past week, the Fear Barometer settled down (protective spreads decreased) as the market settled into the /ESM0 1190 to 1200 range. This indicates a "comfort" zone around the 1190-1200 range. But, on 4/29/2010, the Fear Barometer recoiled higher to 23.93, making a higher low, as the market rebounded from 4/27/2010's Grecian fears. This reinforces that the option market expects a near term ranged market, or potentially a downtrend forming. In this scenario, as the market goes higher and the risk/reward becomes less favorable, the cost of protecting a position increases.
Google trends shows 'emerging markets' are increasing in popularity. This has matched the recent rise in the MSCI Emerging Market ETF.
The TED spread (Euro bank vs US bank lending rates) has remained elevated around 17-18, although the European Banks gave verbal commitment to bailing out Greece. Greece was downgraded to Junk bond status, followed with a Portugal downgrade by S&P. Yesterday, 4/29/2010, the TED Spread broke 19 basis points. A sustained trend to 25 indicates another financial disaster awaits to be realized. Given the movement this year, Greece and Portugal prove to be the weakest areas of the world economy.
If sovereign debt turns sour (e.g. Greece or Portugal defaults), expect EEM to turn with it.
No comments:
Post a Comment