Week in Review: Will Santa Keep Stocks on the Naughty List?

In a low volume market with almost no liquidity anything can happen.  In the past few days there have been sellers of the S&P500 at the 50-day moving average, however,  and the market will need a catalyst to bust it higher and spook the shorts.

Lot’s of chatter over the weekend that the ECB’s new collateral and three-year lending facility is a backdoor “big bazooka” as banks can now put on a massive sovereign carry trade thus providing the backstop the markets have been looking for.  We’re skeptics but will let the markets decide on this one.

In the past few months,  bank stocks have been rewarded by announcing reductions in sovereign exposure,  not increases.    We don’t fully dismiss this positive scenario, however,  as sovereign risk is all about market confidence and, we believe,  at least Italy has a chance to regain it.    Watch sovereign spreads, mainly in Spain and Italy,  and equity prices of the large European banks as a clue that this scenario is unfolding.

Add North Korea to your radar screen.   Monitor for regime stability in the short-term.  More certain uncertainty to an already uncertain 2012.

(click here if charts are not observable)

This entry was posted in Black Swan Watch, China, Week in Review and tagged , , , , , , . Bookmark the permalink.

2 Responses to Week in Review: Will Santa Keep Stocks on the Naughty List?

  1. Pingback: Week in Review: Will Santa Keep Stocks on the Naughty List? | Forex news

  2. Fadi El-Eter says:

    Banks probably are the worst stocks to invest in at the moment, they might go up slightly between now and January, but after that they will be headed towards the “penny stock” level…

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.