From the Trading Desk

Global Markets Header Lower as Cyprus Mulls Bailout Terms

Over the weekend the biggest news story was the Cyprus Bailout news. The terms of the bailout had depositors losing roughly 10% of their deposits. World markets reacted negatively from Asia to the US, but unlike Asian markets Europe and the US markets were able to rebound from the lows. A bit of a blow to the housing market was a dip in NAHB survey registering at 44 down from 46 in the prior month. This did little to hold back dip buyers from pushing the markets back into positive territory by the afternoon. However, the last hour saw sellers hit back and send the indexes off their highs. Volume ran lower than Friday’s level inflated by quadruple witching. We remain in an uptrend despite today’s open and we’ll remain operating in an uptrend.

Why the media is making a big deal over Cyprus is the theft of depositor cash. Cyprus is a safe haven for many Russian Oligarchs and their cash. While it is easy to say the rich should pay, but to steal deposits to increase private cash in bailouts is a tough pill to swallow. The real fear is if this will be the norm in future bailouts in Spain and Italy. At some point these two countries will likely need a bailout unless their economies miraculously begin to grow again. How safe do you feel your cash is in the bank now? Could you imagine if the Federal Reserve and the US government had taken 10% of deposits in 2009? The EU is in unchartered territory and this will be something to watch from a non-trading perspective.

At the open the market opened in quite the oversold territory according to the McClellan Oscillator. The indicator has not been keeping up with the market highs suggesting the strength in the move is not sustainable. Anything is possible, but at extremes this oscillator does offer some value. Let’s not forget the Federal Reserve kicks off a two day meeting tomorrow and releasing their policy statement on Wednesday at 2pm. I do expect to see the market to at least drift higher into the Fed meeting where we’ll hear how accommodative the Fed will continue to be.

When you boil it down it comes to price. Know your exits.

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