Short Term losing Indications

 DIA

 IWM

 QQQ

SPY

EUR/Market

The market is not only rick compared to the Euro on the day, but locally this afternoon as well, someone shut the algos down.

 SPY/Euro

DIA /EUR

 FXE 1 min

 FXE 2 min

FXE 15 min.

Something is definitely up and I don't have a bullish feeling about it.

USO/Market

As a member correctly points out, there is a strange divergence between USO and the market.

Compared to the close yesterday of the Euro, the market is rich in valuation right now, the correlated equivalent would be about SPY 123 as of right now so it's about 1.6 points rich or 160 S&P points.

E-Mini Futures

As you will see the 1 min ES futures as far as intraday trade has thus far been right on today. If that track record keeps up, then, well you'll know.

A negative divergence on the open sending the market lower, the 11 a.m. positive divergence sending the market higher, a small negative sending the market into a small downward slope right in to a positive divergence sending the market higher again. However the biggest divergence of the day (this afternoon) is yet to be fulfilled.

TICK INDICATOR

And some other strange market events.

I found it strange that the market's correlation with the EUR/USD didn't work so well on the downside. I won't hypothesize, but just note it.

The TICK chart is pretty much trendless, oscillating between +1400 and -1100-quite  a range.

Short Term Market Update

 DIA

 QQQ

SPY

EUR/USD at resistance

Italy Comes To The Table-better late then never

As per Reuters:

Italy promised European Union partners on Wednesday a package of reform steps to boost growth and control its public debt, including labour and pensions reforms and additional revenues from property divestments.

In a letter sent to an EU summit in Brussels , the government said it would put forward a firm plan of action to boost growth by Nov. 15.

It promised measures to cut red tape and modernise state administration to improve conditions for business.

It also said the minimum age for old age pensions would be raised in gradual steps to 67 years for both men and women by 2026.

The letter also promised to raise 5 billion euros a year from divestments and improved returns from state property.

So in effect, the URGENT call to Italy Sunday night to get pension reforms underway won't be fully implemented until 2026 at which point the Euro as well as the European Union will likely no longer exist and World War 3 should be wrapping up on the European continent.

So much for urgency.

Herman Von Rumpuy Chimes In

The two agreements reached were:


1) They have agreed to a date in which to kick the can down the road


2) As far as bank recaps go,


"Short term recapitalisation is needed in the current exceptional circumstances to create a temporary buffer allowing the banking system to withstand shocks in a reliable manner. Agreement has been reached that banks should be required, by 30 June 2012, to have 9 % of the highest quality capital. This figure should take into account a marking down for sovereign bond holdings against current market prices (as of 30 September 2011). Banks should raise capital in the first place from private sources, and only if that is not possible, seek support from national governments. If the latter support is not available without creating systemic risks for the Eurozone, the EFSF should provide the loans for recapitalisation.

Any form of public support, whether at a national or EU-level, will have to comply to the rules of the state aid crisis framework. The Commission has indicated it will be applied with the necessary proportionality in view of the systemic character of the crisis. With these measures, we restore confidence and put Europe's banking sector on a sound footing."

This is so full of holes it's hard to know where to start. I guess you can start by what is missing-THE COMPREHENSIVE EU SOLUTION TO THE CRISIS INCLUDING ITALY AND GREECE AS WELL AS LEVERAGING THE EFSF-NO MENTION OF IT.

At least he acknowledges the "shocks" that are coming to the banking sector.

The 9% capital is nothing new, this was reported weeks ago, so no meeting was needed for this.

" This figure should take into account a marking down for sovereign bond holdings against current market prices (as of 30 September 2011)."

Here's a real problem, banks need to raise something like double their current market capitalization, to make it even harder, all of the bonds of PIIGS that have thus far been marked to par will have to be marked to market immediately causing huge losses that will also have to be overcome in their effort to recapitalize.

"Banks should raise capital from private sector sources"-THEY ARE LOCKED OUT!

If that is not possible, then they must turn to their national governments, but they  will have to comply to the rules of the state aid crisis framework.  Which is different for each government, Greece and the rest of the PIIGS are in no place to recap banks.

Only if they can't raise capital through steps 1 and 2, "the EFSF should provide the loans for recapitalisation."

Note the word "Should", not "we have agreed on this course of action" and how could they when they have not agreed to leverage the EFSF which as a Finance minister stated could be "Swallowed in one gulp by Greece alone". Furthermore, they still have no idea what the banks will need, but it sounds like close to a trillion dollars of which at this point the EFSF only has $440 billion dollars.

BOTTOM LINE-A HUGE DUD

As Predicted RIGHT HERE and EVERYWHERE ELSE...

The EU summit would be big on plans, scarce on details.

Lets get started-this will be fun!

• EURO ZONE PLANS TO LEVERAGE EFSF BAILOUT FUND "SEVERAL FOLD", FINANCE MINISTERS TO DECIDE DETAILS IN NOVEMBER -- DRAFT EURO ZONE SUMMIT STATEMENT
• DRAFT EURO ZONE STATEMENT MAKES NO MENTION AT THIS STAGE OF ITALY'S REQUIRED BUDGET STEPS
• NO AMOUNTS SET FOR BANK RECAPITALIZATIONS

Point 1, the leverage of the EFSF was supposed to be decided today, I guess they are taking a page from Congress and maybe will create a super committee and kick the can down the road a bit further until they actually figure out what they are dealing with-which s to say, until they realize that they are in an impossible mess.

Point 2, Italy was pressured to make promised changes as of Sunday night, those changes seem to hard to come by in Italy, so lets just leave that one out and maybe no one will notice :) (smiley face)

Point 3, They already set bank recaps at $110 billion, now we are going backwards which actually makes perfect sense as pointed out before, 3 stress tests later and they still have no idea who has what and how much liability, very reminiscent of US sub-prime write downs circa 2008 when banks would tell us, "We have written down all of our subprime exposure" only to be followed by 4 consecutive bigger write downs.

Next Batch or Rumors-Statements:

First can we get some "Mission Impossible" theme music in the background?

• EU-27 RELEASES STATEMENT AFTER BRUSSELS SUMMIT
  
• EU-27 SAYS COMMISSION MUST URGENTLY EXPLORE BANK GUARANTEES
  
• EU SAYS BANKS SHOULD FIRST FIND PRIVATE SOURCES TO RAISE FUNDS
• EU SAYS STATE AID RULES ON BANKS SHOULD BE PROPORTIONAL
• EU SAYS MID-TERM BANK FUNDING MUST HEAD OFF CREDIT CRUNCH RISK

Point 2) Must urgently explore? This work should have been completed months ago, again they have no idea of who holds what and what ticking time bombs will blow when they embark on any policy course. The first step to solving a problem is identifying and understanding it-at this ground breaking summit to save Europe, they haven't even gotten that far.

Point 3) Banks have already made clear that valuations are too low for them to voluntarily seek out capital, it makes no sense for the banks to seek capital at fire sale prices, they made this clear weeks ago. Secondly, they also made clear that they are locked out of private capital markets and rightly so as no new investor will put money in to a bank when they have no way of knowing if that bank is about to implode. This is a pure, desperate, idiotic statement. What banks WILL DO is stop all EU lending and as I pointed out 2 weeks ago, European businesses use approximately 80% bank loans to run their businesses as compared to 30% in the US. You think the US credit freeze was bad, just wait and with that goes all hopes of green shoots when it comes to EU member's GDP.

Point 5) Directly contradicts point 3, explanation above. If a bank can't raise capital which they can't and the EFSF is not going to give it to them, then the policy will be shrinkage and as we know, that means no loans, this way they bring down their liabilities effectively nullifying point #5.

This is too easy, even for a hack like me.

NEWS

As I mentioned, the news will be hot and heavy today causing a lot of volatility and anything EU related needs to be taken with a grain of salt, such as this last rally intraday.

I've had a lot of questions as to what has been driving this and I found the first of many answers. There was a rumor that the Chinese bailing out the EU about 12 hours ago!


This from the AP 12 HOURS AGO!


"China to take part in eurozone bailout fund"
Actually 13 hours ago.


3 hours later, Reuters refutes this very same rumor.
 China has backed efforts to tackle the euro zone's debt crisis but there is currently nothing concrete concerning support for a special purpose investment vehicle (SPIV) of the euro zone's bailout fund, a Chinese diplomat said on Wednesday.




More Sewing Circle Rumors on the way....