The T Report: Memories of 2010

The First Real QE Day Trading Pattern

Yesterday’s stock action reminded me a lot of 2010 after QE2. We saw stocks gap higher on the open, then grind higher throughout the day, with a final surge into the close. That to me was a defining pattern of the rally in 2010. Yesterday was really the first time we’ve seen it since QE3 was announced. We have had some big days. We have had some sell-offs, but we have faded or bounced into the close, but this distinct “QE” pattern hadn’t occurred. At least not is such a striking way.

I remain bearish, more so now that stocks have climbed to 1,455 but yesterday’s movement is concerning. I tend not to change views based solely price action (at least not to conform to the momentum) but yesterday’s move does make me wonder if we have moved into some 2010 like QE rally. I don’t think so, but I am watching this closely.

A Credit Line For Spain

Markets are reacting positively to the stories that Spain will receive credit lines and OMT. Spanish stocks are up over 5% this week. While this isn’t bad news, it isn’t new news and isn’t going to change much.

We don’t know the details on either OMT or what the ESM line of credit but if they follow the IMF’s guidelines, the rate is likely to be between 2.5% and 3% all-in, which is where the Spanish 2 year is right now 2.78%. The market has anticipated this ever since the OMT announcement. We have bounced around but as far as I can tell, it is very well priced in and I wouldn’t expect any intervention to bring rates much lower than this.

Conditionality will remain an issue and the curve will steepen as investors are constantly left in fear that the government will fail and the EU support will be pulled, or changed.

GS and Citi

Goldman crushed it on earnings, yet the stock was down. Citi had the sudden resignation of its CEO and the stock was up. I understand the rationale, but I think had you been told that information ahead of time, the natural reaction would have been to expect the opposite moves. It just enhances the view that this is all about positioning.

Concerned Bear

So I remain bearish and I think the surge since 11 am on Monday is not justified, and investors are overly bullish on what is really old news, but the movement yesterday is worrisome from the short or underinvested side if it really is the all-clear to get into QE rally mode.