Wow what a day/week so far! After being down 15 handles in the S&P futures Sunday night, markets ground higher Monday closing flat to up. Monday night, futures were a little soft, nothing too nasty though, but then got slammed during the day today. However, more than 60% of the losses were made up by the close with markets closing only marginally in the red posting -0.4-0.6% losses across the major indexes. The Nasdaq was the biggest swinger, [insert your "swinger" joke here] from being down the most to closing down the least.
So what the heck is going on?! Our analysis reflects a simple digestion of the strong YTD gains but no major breakdown, not yet. Here's why:
1) The French elections were not a surprise to the market as they began being priced in last week.
2) Recent economic data has been softening but has not gotten "bad" yet thus far.
3) Earnings season is nearing its end but was received positively in general by traders.
4) Europe is under control (for now) with it's recently increased bailout funds.
5) China is still growing.
The S&P is down -40 points / -2.8% in the last 7 trading days. The S&P fought all afternoon and closed above the 1360 level today reversing major losses intra-day. Strong support remains in the 1350 area and below at 1345 and in the lower 1330's. Short term, we actually anticipate a bounce to relieve the oversold conditions. We were searching around for some new trades this afternoon for both Trading Services but elected to hold off for today.
Intermediate term, we are not calling for new highs out of the anticipated bounce. In fact, we are expecting lower prices, but not until a little later....like late May / June. It still feels like markets have a Bernanke / Obama bid underneath them.......for the current election year possibly; just calling the trading action like we see it.
Implied Volatility exploded today with markets pulling back which somewhat impacted the values of our positions. However, by the end of the session, time decay continued to erode our still far OTM positions and premiums of our positions are back in check. We are comfortable holding all of our current positions here under these market circumstances and don't anticipate any adjustments being required. However, we'll keep a close eye on them as always.
Thanks to everyone and have a great day!
