TFMkts – Best Ideas – New Trades – Adding Shorts

Fading this rally:

Short IG18 at 102.75. Buy protection on IG18.

Short ES (S&P) at 1367.5.

Getting back to an aggressive short position. Fading yesterday’s rally worked, and even with the overnight futures move, the Italian CDS trade from yesterday morning is unchanged, and the Nasdaq (QQQ) short is still in the money. Time to reload on the IG18 and S&P trades that I covered. HYG is making me very nervous – the discount really scares me, but more on that later in the T-Report.

I’m fading this because it is unclear what the ECB is really willing to do. Talk is cheap, but there is real concern within the EU that bonds on the ECB balance sheet cause problems. They would like to shift SMP to EFSF (it is part of it’s bigger mandate), but so far haven’t. They also know once they start buying, it will be a clear indication that LTRO failed. So with Spanish bonds already off the highs, CDS ignoring the move in the first place, and Italy continuing to issue short dated paper (which doubled in yield in a month), there is no reason to think we are on the road to recovery here. Why the ECB didn’t sell some inventory when the market was “on fire” makes no sense to me.

Alcoa was good. So what? One company is not the entire earnings season. Need to see a lot more reports before I become convinced that earnings will be good across the board. Tech earnings in particular. I am now finally very confused by AAPL. It seems like I-Pads and I-Phones are available almost everywhere. No waits. Not a really bad thing, but at these valuations is strikes me as a concern.

Current Trades Directional Trades

Short S&P 500 (ES), Short Nasdaq 100 (NDA/QQQ)

Short IG18

Short Italy via CDS

Short Spanish 10 year bonds

Long Greek 2023 PSI bonds

Long HYG

Current Trades “Basis” Trades

Short IG9 10 year and Long IG18 5 year

Long HY17 and short HYG

Long Italian 5 year bonds, Short Spanish 5 year bonds