ES slipped overnight on two worries, as mentioned in the last post, a lack of details and probably some reality about where the money may come from, whether the ESM will be ratified, etc. As I mentioned, the EU is great at announcing Bazooka plans, but they rarely have the facilities in place to back them up.

Trade also slipped (again as mentioned), on fears of Italian contagion.

In the Week Ahead post I also mentioned watching 10 year Spanish sovereign yields, they initially fell as the session opened, but bond traders understand perfectly well that in all likelihood their holdings were just subordinated over the weekend or soon will be. Well earlier than I thought, both Spanish and Italian bonds are now selling off as It has been confirmed by the EU commission that ESM loans will have preferred senior creditor status,

"Any aid that might come from the European Stability Mechanism, which is expected to start work next month, would enjoy a preferred creditor status second-only to the IMF, the spokesman confirmed."

Spain in red, Italy in white-after a brief dip, they are headed well above their peers in yield. Bond traders learned what to do during the Greek debt restructuring or PSI, sell all Spanish law bonds and buy the English law bonds that have better protection so when a debt write-down comes, they can hold out and sue to recover full par on the bonds.

Now the interesting event to watch for will be ECB support of the bonds in the secondary market, you'll know it when you see it.

This morning Cyprus has hinted they may be looking for a bailout next as the realization sinks in that those in the most trouble have the most leverage over favorable loan terms, just as Ireland set out to remedy this weekend.

As for the Euro and ES (remember, the market isn't going to make anything easy), this has more to do with realities than headline hype.

 A negative divergence in to the European opening in ES with the typical small head fake move above resistance before a reversal. Europe opened at the green arrow, we'll see if this positive divergence developing in ES will hold water.

As for the Euro losses, pretty steep from the opening of FX trade this week, below the short covering level, still above the opening trade levels.

This puts the SPY just short of its short squeeze level...

SPY open today on a daily chart...


Market Updates coming next