The ECB (European Central Bank), which had been keeping the Greek financial sector afloat via the ELA (Emergency Lending Assistance) facility, with some $89 bn Euros of assistance, cut off further assistance after Greek PM, Tsipras announced the July 5th referendum, effectively freezing ELA assistance which was running somewhere around a billion plus euros a day as depositors took their money out of Greek banks, as of June 26th.
This necessitated last week's Bank Holiday in Greece as there simply aren't funds without the ECB's ELA. As bad as that is with Greeks unable to pull savings from banks, things just got worse this afternoon as the ECB not only left the freeze in ELA assistance at the June 26th level, but started haircutting the value of Greek collateral (mostly Greek bonds). There are plenty of details available for those interested, but effectively the ECB's haircut on Greek collateral essentially made it so there's no more Greek banking buffer or collateral available to pledge for ELA assistance, whatever collateral was left just saw an across the board haircut in the value of the collateral so as to effect an outcome in which no collateral exits to pledge for further ELA assistance.
This "could" lead to a Cyprus style banking "Bail-in". Remember that when Cyprus' bank depositors with more than $100k in deposits had their assets seized (mostly Russian depositors)?
So we all know by now that the Greek referendum roundly shot down the Troika deal, now the market is concerned with what comes next and this is to say NOTHING of China and our own economy/F_E_D rate hikes and the reason behind them. If you saw the last post, Financials Follow Up / Example, then it should be clear that any bounce is not a risk on bounce, but a risk off bounce used to bail on remaining assets and/or to open/expand short positions. This has been the trend anyway as we have seen since the head fake / false breakout forecasted on April 2nd and effects in May. For example, watch the trajectory of 3C's trend since the May head fake and watch what happens overtime there has been a market bounce since.
You can probably guess why I want the bulk of core positions in line with the path of least resistance, but as to the UVXY short and IWM $125 calls (and a short term market bounce), I didn't fill out those positions for 1 simple reason... the SPX-200 day moving average which I'll elaborate on below.
As to the possible Greek silver lining, what's up with the IMF?
The IMF has seemed uncharecteristically friendly toward Greece since the "No" vote this weekend. My take on the situation is that the IMF-International Monetary Fund, is not a European based institution, in fact one of the disagreements between Germany's Chancellor, Angela Merkel and their Finance Minister, Schaeuble was her decision to include the IMF in the Greek bailout (the 3 institutions = the Troika, the EuroGroup or Euro Commission, the ECB and the IMF). Of the 3 organizations, the IMF is the one that is most decidedly NOT European and that's what Schaeuble's argument was, "European problems should be solved by European institutions".
You may recall that it was the IMF who essentially said "No" to a potential deal between Greece and the "Creditors" as the Greek government would like them to be called after expending so much energy to win the right to change the name "Troika" to "The Creditors or Institutions" on formal documents. It was the IMF who said that the deal which included hikes in corporate taxes was unsustainable and that Greece needed to encourage investment, not discourage it so the potential deal went out the window. The IMF also believes the only deal that will work will have to include "Creditor" write downs, meaning cutting a portion of the principal owed, which is abhorrent to Germany as the best that was offered was some savings through lower interest rates and the like, this is something Germany is absolutely loath to consider because it sets a bad precedent for the European Union. I suspect the IMF is less worried about the European Union than the ECB and EuroGroup, thus Schaeuble's irritation with Merkel for including the IMF.
Once the vote was in, European institutions seemed cold , essentially saying it was up to Greece to submit proposals to preserve their place in the Union, however the IMF which may seem a bit European as France's Christine LaGarde is the managing director, said:
"The IMF has taken note of yesterday's referendum held in Greece. We are monitoring the situation closely and stand ready to assist Greece if requested to do so."
Who knows what "Assist" means, but the one thing that strikes me is the fact that the IMF has less vested in the European project (European Union) and being Washington-based, probably has a bit less concern for the "Creditors" receiving their full payment due and most likely is a bit more worried about Russia and /or China gaining a foot-hold in Greece, smack dab in Europe, which would present the possibility of a Russian naval base right in the Mediterranean, something I'm sure both the Europeans and Washington are concerned about, but at this point Washington is probably a bit more concerned with that potential than Europe who has other interests such as holding the Union together. Interestingly guess who Greek PM, Tsipreas was on the phone with today? Putin.
As for the market today...
The market needed help today just to hold in the area. VIX versus the SPX...
HYG , HY Corporate Credit is in the area rather than leading to the downside. Remember it's HYG's price movement that leads the market and long term it's in a nasty position, but near term...
We have some HYG support, it's not a lot as it's at the 3 min chart and not much further, but along the lines of a bounce.
Pro sentiment is also pointing toward a bounce as shown last week...
However again don't forget to keep things in perspective...
Other supportive evidence...
This is the 3rd in the last 5 days and it has had an excellent track record.
Beyond that there are the 3C charts we have seen last week and today in the major averages...
Again we need to keep this in context...
I have a very specific opinion as to how this goes down which is why I didn't fill out the IWM calls or the UVXY short today.
My trading plan would be to fill out the positions and perhaps add a few in case there was a test below the 200-day which is even more popular than the 150 sma, and would create significant momentum if it could pull off the same head fake, thus I'll wait and see if it happens, confirm a head fake and if all falls in to place, add.
As to the reasons for a bounce here, I doubt it's about an oversold condition and more about a risk off condition, Wall Street always tries to sell in to strength (or short), just look at those XLF charts, Financials Follow Up / Example, they look no different than any of the averages.
As I went through my daily ritual of looking at numerous futures in 8 to 10 different timeframes each, I noticed the $USDX looks like it may get a brief stay before falling lower, my guestimation is that this would be a reflection of a short term bounce with a $USD carry trade unwind in to it.
Obviously I suspect we are in for a bounce, I posted that in the first paragraph of last Thursday's The Week Ahead forecast and there have been a fair number of charts reflecting that today.
As to the VERY specific scenario of breaking below the SPX 200-day sma as a propellant for the market via short squeeze and futures both tonight and beyond, it makes sense from a head fake conceptual point of view and it seems to fit with the 3C Index futures' charts. You likely already saw the intraday/overnight 1 min charts I posted just a bit ago, Quick Index Futures Update, not looking great very short term and if the rest of the Index futures timeframes looked like that, I'd say look out below immediately, but as seen earlier today when I went through futures they didn't which is part of the reason for today's Trade Idea: Opening UVXY (Short) Position post.
For example:
The only thing that is missing is the 3/5 min timing charts which can develop extremely fast. In my view, so long as the intraday/overnight charts remain looking bad, the only and best reason for all of these charts where they are would be the market's need for a head fake move below the SPX's 200-day moving average to create a short squeeze which would fuel the bounce.
Either way, whether we get a SPX 200 sma head fake to provide fuel for a bounce or not, I believe we'll get an upside bounce, I just happen to think a move below the SPX 200-day moving average is conceptually the stronger scenario and the one in which I'd be more aggressively adding short term trades.
Lets see if the overnight action is a head fake to take us below the SPX 200-day and if we can confirm a head fake, that would make for an excellent short term options entry, such as SPY, IWM or QQQ calls (VXX puts, etc).
Have a great night!
No comments:
Post a Comment