Ahead of the open, (12-04)

A decent morning gap open as ’longs’ had a few things going for it.  Firstly, peripheral yields had recovered a big chunk of yesterday’s surge as ECB & French officials defended Spain saying it is not ill and all is exaggerated  and ‘interventions’ are there to use.   Also, AA’s better than expected call played the healthy economy card factor in favor of the longs.  Unfortunately, a few calming words and a few reports won’t turn the cautiously sidelined around so quickly.  This was clear as the SP flatined all day and failed to regain 1370 by the close.  Some relative weakness in leaders didn’t help the matter.  Still, SP 1370 wasn't so formidable on the downside and the same may be true to the upside, if just a little buying comes in the next 2 days.  Any fresh shorts at this level will likely pull the plug quickly.  On the trading front today, one of those days you hate if you had no holds as single stocks did little after the gap open.

Judging by the covering bounce, the market will be back to chopping around intraday, overnight on Europe ‘comments’ as was the case for so long in 2011 until yields stabilize.  It’s a pain, but it does make shorts eager to cover on each ‘calming’ story. This should bring some stability, support for the market as soothing comments are upside risks to shorts.  Unfortunately, the first thing you look at in the morning is where the Spanish/ Italian 10yr yields stands.

Overall, despite the pared losses it wasn’t really on conviction buying, just covering.  A pretty positive Beige Book couldn’t do the trick to get flows going in the afternoon.  In all, just a few small pieces of the puzzle to the ‘fix’  discussed previously.