Saturday, June 25, 2011

ITZ Weekend Review 6-25-11

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The S&P 500 managed to hold above it's 200 moving average as the week came to a close.  However, uncertainties about the Greek debt situation and the removal of the security blanket of Fed easing could bring another week of volatility, as the second quarter draws to an end. On the economic front, we have ISM manufacturing data and three Treasury auctions totaling $99 billion in new securities, which hit the market next week just as the Fed's quantitative easing Treasury purchase program winds down. As the S&P 500 manage to stay above the 200ma it is still down 5.7% for the month, down 4.3% for the quarter, but still holds a 0.9% gain for the year.

The U.S. Dollar Index nearly gained 1% for the week in a risk averse trade, and the euro slid 0.8% for the week to $1.41 by Friday, as investors watched the Greek government struggle with a confidence vote and an austerity plan it will vote on this coming Wednesday.

 The equity market remains troubled by a number of concerns, including Europe, the U.S. debt debate, weak economic data and the end of the Fed's quantitative easing program, or QE2. He expects Greece to get its funding, and Congress to approve the increase in the debt ceiling.
Stocks, however, could be under selling pressure for another couple of weeks, as investors watch Europe and also debt ceiling and budget discussions in the U.S. On Monday, President Obama and Vice President Biden will meet separately with the Democratic and Republican Senate leaders in an effort to get talks on the budget and long-term debt reduction on track.

When the Fed stops its so-called QE2 program, Fed watchers expect it will continue to buy about $25 billion of Treasury's a month, as its mortgage holdings roll off.
What QE2 did was create a lot of risk and we're still living with a lot of them. Was the Fed successful? Itz doesn't believe so. It's somewhat unclear for most of QE2 what it was doing to Treasury prices, but most everybody agrees it was inflating stock prices. In the last few months, the stock market has given back some of that froth. What we don't know is how much of that is technical around QE2 and how much is a fundamental worsening outlook for the corporate sector?

Will there be a second half recovery? Many economists believe the soft patch in the first half of the year will prove transitory.

The impact from oil is already fading (Itz believes short term), and oil prices took another big hit this past week. On Thursday, the International Energy Agency and the U.S. energy department announced a program to release 60 million barrels from reserves, even though oil was already about 20% off its highs. That knocked crude even lower, and Brent fell more than 7% for the week to $105.12 per barrel.

ITZ PIX was stopped out of the Proshares Ultra Short S&P500 etf (SDS) and broke even. In addition ITZ PIX entered the second half position on Proshares Ultra Crude Oil (UCO). ITZ outlook is that there could be some more selling ahead, WTI oil could possibly test $85 and the S&P 500 break below the 200ma & test lower support levels possibly 125 or 1225. Sure, short term things appear somewhat bearish, but longer term, things should improve...after all we're entering election season soon.

Geithner on Economy & Debt Reduction
CNBC's Steve Liesman talks to Treasury Secretary Tim Geithner about the economy and the potential to get a debt deal done, from a pizza shop in New Hampshire.

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