Edging Higher, Edgily

Good morning, and Happy Friday. I was looking for more, frankly, on the back of a decent non-farm payrolls number. It appears that those most vulnerably short have already covered, leaving traders to decide if they really want to put on new or additional long positions after an almost-hundred point move since Tuesday afternoon. In most cases, the answer appears to be “No, thank you, perhaps on Monday.”

The hourly SPX chart shows that price action has been hugging the middle Keltner Channel band; as Todd notes in his work, a move that remains between the upper and middle bands is constructive. The  Yom Kippur holiday begins at sundown, and it’s a beautiful day back east; both factors militate in favor of a lot of early departures, and thin trading this afternoon.

There are several Euromeetings this weekend between the IMF, Germany and France to try to figure out what to do on bank recapitalization. The European Central Bank got people overexcited yesterday by extending its lending facility to twelve months from six, but that provides liquidity, not capital. I’m inclined to be somewhat bearish on the assumption that nothing useful will occur at these gatherings, but there’s always a chance.

All I’ve done on longer term trades is buy some SPY Nov 116 puts with the SPX at 1160. Those were somewhat under water following the non-farms payroll report; when the move appeared to stall out around the 1170 level, I added more puts, and have now exited at a less than glorious “flat”. I still like the risk/reward, but am unwilling to sit through a weekend of headline risk. I’m still short a fair number of MSFT Nov 25 puts, which are behaving very nicely.

Best of luck today.


P.S.  “Coulda, shoulda”; shortly after I closed my SPY long puts, Fitch, no doubt annoyed at S&P and Moody’s for hogging all the headlines, downgraded Italy and Spain, the latter from AA+ to AA-. The downgrade of Italy was a “dog bites man” piece of non-news, but the cut in Spain’s ratings was unexpected, and it drove the Euro down roughly a Euro (1.3513 to 1.3381), and turned U.S. equities from basically flat to considerably lower. Thus far, the bottom in the SPX has been 1150.63. One of those headline risk things you hear so much about.