Tuesday, November 15, 2011

Italian Ten Year Yields Back Over 7%, So Everything Must be Sold

We've seen a lot of mass correlations over the past few years - the most prevalent was 'anti dollar'.  When the dollar fell, you bought anything...when it gained, you sold everything.  Lately that trade has been replaced with "the European situation" in general, and "Italian ten year yields" in specific.  After last Wednesday's rout in markets finally forced out Berlusconi, the market rejoiced as if all the region's problems went away Thursday and Friday.  Ten year yields fell, under suspicion of ECB buying (we still don't have confirmation of what happened Thursday and Friday as yesterday's weekly ECB purchase tally goes only thru Wednesday).  Markets rallied.  All the debt suddenly didn't matter because one politician was removed.

And now we are back to reality - frankly, it's like that pop a mole game, we just wonder which country will pop up next (i.e. which leader we need to remove I suppose!) - Belgium, Spain, France, et al.  Until the ECB turns into Ben Bernanke, we will continue to have this randomness it appears.  Bouts of euphoria versus swoon days.  This morning is shaping up to be a swoon day.
  • Prime Minister-designate Mario Monti is meeting the leaders of Italy's biggest two parties to discuss the "many sacrifices" needed to reverse a collapse in market confidence as the yield on Italy's 10-year benchmark bond leaped above 7 percent.

European GDP figures out this morning show growth near stall speed in all the countries that matter.  Won't bother to detail it, because it's all about bond yields...

As for the market, we have incredibly obvious levels of support, which the S&P 500 bounced off of last week, and once again sets the floor.  I will note - we now have a series of 2 lower highs, which is usually bearish.  But this market is driven by headlines more than technicals right now.

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