The T Report: Time For A Breather

I Can’t Do It.

I just can’t get excited about the market here. I can’t help but getting out of Spain and Italy and Banks at these levels. It has been a great run, and while I do believe the ECB will launch some new programs, we have priced a lot in. It also seems to be about the right time to start hearing some disappointing news (not old recycled Nein reports) about the scope and limitations of the program.

I still think the ECB will do something and the “epicenter” theory will play out, but right now I’m looking for a breather.

MAIN is still only at 139, which isn’t as tight as it got yesterday. Spain has given up early gains and keeps drifting back towards unchanged.

IG18 is trading 6 bps rich to fair value, so at 97.75 it has continued to outpace single names. I would look for a snap back here and think it can push back above 100 in the short term and that the HY/IG “eclipse” will reverse. I continue to like credit, and CDS in particular, but we have hit that sort of number where we should see some profit taking and a few new shorts will be emboldened, and frankly, numbers like 97 aren’t typically big “stop loss” numbers.

The HY ETF’s are performingly with a modicum of restraint. Shares outstanding aren’t ratcheting up and they are trading at only a small premium. At these prices, my inclination would be to get short for a trade, but I would have liked to see a spike in shares outstanding or a significant premium, so I think I have to remain neutral here. In this market, high yield still offers value, but it comes down to specific credits and specific bonds/instruments.

Continued shorts in “safe haven” bonds still makes sense as I think that status, particularly in Europe, will be assailed as the realization that there will be no new currencies in the near term, and that Germany and France will be footing the bill, becomes consensus.

So I will now sit here flat Spain, Italy, and Banks and short the US. I still like CDS but would not be adding here, if anything, would finally take some profits here on CDS. My big fear is that somehow Apple continues to charm the investing world, dragging the rest of the U.S. stock market along with it.