Of cats

So the SPX has opened higher, albeit never reaching the levels implied by the futures for most of the trading day so far. So does this cat have another eight lives, or is it deceased? Inquiring minds want to know.

Macro Man reckons it is a sucker's bounce, reflecting the assumption that 'nothing's changed.' Quite remarkable, really. Many of the same people who have been sweating the subprime market and fear a US recession now want to throw risk at the market after a one day downdraft. Remarkable! (As he types this, new home sales print a truly awful number.)

While Macro Man does expect this dip to eventuate into a nice buying opportunity, experience dictates that 'volatility events' like we had yesterday do not dissipate in 12 hours.

He therefore sells some risk assets- and what can be riskier than Turkish equities? He sells 2000 A51 futures at 52.825, risking 54.






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February 28, 2007 at 7:38 PM ×

Interesting the European reaction to it all. ESX was down another 2% in the first minutes (despite it now closing at 10 PM), followed by a nearly 1.5% bounce by lunch. Now with the S&P still up .38%, the former can only manage 15 points over its morning low.

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Anonymous
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February 28, 2007 at 9:41 PM ×

The actual canary was when BSE/India dropped 5% in a week recently. Now Shanghai -9%+4% = ?

I sold Turkish stocks Monday, with a nice profit since New Year, on a whim. I don't think all this is over either. It's not the real economy of the world that needs a shakeout, it's the financial and credit economy.

Robotrading programs always buy on dips.

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Macro Man
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February 28, 2007 at 11:08 PM ×

Agreed on Sensex. India + China having volatility events within a week of each other smells bad.

I've been looking at Turkish stocks for a couple of weeks and could no longer resist the urge this afternoon. Nice trade!

Charles, when Shanghai A shares rallied 4% into the close, I think it was a given that European equities would retrace at least some of the gap lower.

I think stocks will end up being a nice buy at some point in the next few weeks or months; however, I suspect that that place is lower than we are now. Too many people I talk to in equities, FX, and credit are talking about dip buying and 'just another correction like January.'

As I noted yesterday, I think it will be worse than that, but not a recessionary type outcome by any stretch.

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March 1, 2007 at 10:57 AM ×

Shanghai nothwithstanding, it had overshot by so much... all this an observation to fuel my pet project of studying how the Eurostoxx spends so many of its mornings attempting to fade the first half hour of trading in the S&P, then spending the next while coming to terms with it. The sudden decision that previous 'fair value' is no longer so may imply some supportive bid over the next while.

Then again, it may not.

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Macro Man
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March 1, 2007 at 5:00 PM ×

What I find intersting is the chronic inability of overnight trade in S&P futures to forecast the subsequent price action in the index.

I think for the first three weeks of the year, premarket trade in SPH7 was wrong on the daily direction every day but one.

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March 1, 2007 at 7:10 PM ×

And don't look for help from the first fifteen or twenty minutes either. It all gives you the impression that some other score is being settled to which you're not privy.

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Macro Man
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March 1, 2007 at 7:36 PM ×

I've generally assumed that the opening few minutes of trade, particularly when there is no obvious news out, belongs to retail investors. Insofar as retail is by definition 'small-ticket', I suppose it is not altogether surprising that you can get false signals, as the money that's big enough to shift market direction remains lurking in the wings.

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