Wow, today’s trading was really crazy! I must admit I suffered some big hits today. Well, overall I am still up and making money, but some $500 day loss. Little bit less than that, actually.
What’s crazier here is the reason for such irrational move of rallying up in the last 30 minutes of trading. The whole day S&P 500 (SPX or SPY) was trading almost 200 points down and last 30 minutes a huge reversal. On a quite high volume. But what was behind it? Just a report of the European Central Bank that they are working on re-capitalizing European banks with new capital. But where do they want to take the money from? The whole Europe is sinking in debt and they want to put more money into banks. Where from?
I have read an opinion somewhere on the Internet, that all this is just a smoke and mirror cover to hide the reality – spreading the Greek debt among more banks or investment institutions so those over-exposed banks (mostly French and German) will not get hit when Greece finally defaults.
I must admit, that I do not see any other reason for this madness.
To support this take a look at French-Belgian bank Dexia. The bank is overly exposed to Greek bonds, mostly heavily undervalued or better devalued. Another impulse to this market move was that the Belgian and French Government agreed to help. However, the crisis inside the bank is so deep, that this bank may become the first victim of the debt crisis. At this point the bank has liquidity problems and is seeking to increase her capital reserves. But stock holders do not want the bank to borrow more money and they would rather see selling portions of the bank. That would mean splitting the bank into two units and selling one unit to increase reserves.
Well, no matter what will happen in Europe I do not think, this solves the problem and thus I expect October to be more sluggish. We may see drops in the value and more downside move. However, thanks to the elevated volatility (VIX.X) these swings will be more wild and vicious.
Today’s rally just stopped at the (previous support) now resistance and I do not see much of an impulse pushing this market higher (back thru its new resistance). Therefore we may see a reversal tomorrow or the following day declining towards 100 – 105 level. If that happens, I will not only recover all today’s losses, but make nice profits. If it won’t happen, I will have to swallow my pride, get out of the bearish position and move on.
Happy Trading!
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