Since last Thursday, the CSFB and TED Spread have headed lower. Both are above halfway through retracing their latest impulse. (CSFB, since 6/7, TED since 5/26).
On 6/7, the cost to protect a position was low, but it also proved to be a turning point for the daily trend. On 6/4, option put and future contract interest increased. The delta between 6/4 and 6/7 call options showed build-up, and put delta 6/4 to 6/7 was virtually opposite.
6/7 was a "quiet" day in the futures, but the options pit showed an activity reversal at day end, although the market slipped lower. Some of this activity may have been due to contract roll-over, since June 18 was a futures contract expiration, and the oversold levels of the market.
Given the market is trending lower and the relative cost to buy a protective put is lower than last week, but still higher than two weeks ago, this downtrend may have a short term bullish reversal & bull failure approaching (in that order).
Wednesday, June 23, 2010
Monday, June 21, 2010
CSFB New High & TED Leveling Out
The CSFB made a near term bottom on 6/7/2010. It then proceeded to launch to a new high (6/17/2010 and 6/18/2010) with a strong uptrending week. This implies higher discomfort with the market level, which coincides with 6/11/2010 breaking the down channel resistance from May 2010.
Part of this run-up may be future contract rollover, since the ESU0 volume built as the ES-mini contract volume and open interest trended higher. A break below 1104 on ESU0 would seriously slow a further bull run.
6/7/2010 thru 6/18/2010 represents professional price-level confidence (shrinking spreads, lower cost to insure negative downside.) The market trended higher, and struggled/capitulated for a few days 6/16-6/18, as option expiration approached. This reversal (protective spread increasing, with equities heading higher) may have been driven by the oversold levels of the market at the time of the reversal on 6/7/2010, and the realization that the downward trend was in place, calling for lower protective put spreads.
Gold broke a new high on 6/18/2010, as the market retested the previous day's range. Gold has trended higher as the TED Spread has continued to decrease from it's recent highs near 50.
The TED Spread is still in a position to trend higher, implying that credit/lending risk has reversed from it's multi-year lows carved out this year. If the TED breaks and holds under 40, the market may have nothing else to do this summer other than sector rotation, to determine who carries the market into Q4 2010.
Beware if credit risk shown in the TED Spread spikes higher without notice by the equity markets. This could imply a major credit event readying to be uncovered. My target for credit risk fear is 75, then to consider 4-6 month protective puts on the 3-month highest flying asset class.
Part of this run-up may be future contract rollover, since the ESU0 volume built as the ES-mini contract volume and open interest trended higher. A break below 1104 on ESU0 would seriously slow a further bull run.
6/7/2010 thru 6/18/2010 represents professional price-level confidence (shrinking spreads, lower cost to insure negative downside.) The market trended higher, and struggled/capitulated for a few days 6/16-6/18, as option expiration approached. This reversal (protective spread increasing, with equities heading higher) may have been driven by the oversold levels of the market at the time of the reversal on 6/7/2010, and the realization that the downward trend was in place, calling for lower protective put spreads.
Gold broke a new high on 6/18/2010, as the market retested the previous day's range. Gold has trended higher as the TED Spread has continued to decrease from it's recent highs near 50.
The TED Spread is still in a position to trend higher, implying that credit/lending risk has reversed from it's multi-year lows carved out this year. If the TED breaks and holds under 40, the market may have nothing else to do this summer other than sector rotation, to determine who carries the market into Q4 2010.
Beware if credit risk shown in the TED Spread spikes higher without notice by the equity markets. This could imply a major credit event readying to be uncovered. My target for credit risk fear is 75, then to consider 4-6 month protective puts on the 3-month highest flying asset class.
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