Eric has been posting the LIBOR spreads against fed funds, which gives a little window into trader sentiment. As the spread narrows, it shows more confidence in the credit markets. As Eric explains, the LIBOR-fed funds spread is a fear index, and as the spread widens this denotes the liquidity and credit markets are locking up. Another explanation is here. Just one more data point I suppose, but we all know that bond traders are the smartest guys in the room-- reference Rick Santelli.
Great market sentiment, cash on the sidelines, high short interest: all point to a continued market rally in the immediate term. Even so, if there is a melt-up, say to SPY 142 in the next couple trading days, then I would not hesitate to open a short position for the pull-back.
Have a good weekend. Be careful.
Disclaimer: Never, never, never take advice from hacks who have free websites on the internet. This is for entertainment purposes only, so have fun.
2 comments:
I'm talking my book, but this rally, hasn't been quite as volatile as many..... and besides LIBOR increase (which may be a function of a WSJ story, calling euro bankers out for lying about the rate). There are some good economic indicators; stronger dollar, reduced fed funds expectations.
I agree that there are plenty of bullish indicators, and I would not argue with playing a further uptick in the rally, but I see the risk reward as less favorable than a week ago.
I'm not sure how to use LIBOR, especially with the WSJ story showing the potential for manipulation.
Volume has been moderate and headwinds on earnings are still ever present. Resistance at SPY 140 or 142 looks strong.
As you pointed out, Eric, the pennant formation will end with a further downslope. As Brian Shannon would say, this market is guilty until proven otherwise.
Besides sentiment (which is bullish) I see only fundamental and technical bearishness for the intermediate term. I took some profits on Friday, and even made a little more on a 45-minute holding of SKF late in the day.
But I am still slightly net long with a large cash position. Any huge run up on low volume will prompt a short index position-- maybe FXP...
I'm busy at work tomorrow and won't be able to watch the market very closely.
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