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The Good, the Bad, and the Ugly for the Summer Stretch


The yuan, banks, and oil rigs are among the headlines to watch.


Following a three-session span that saw the S&P slither within a 15-handle range -- presumably the path of maximum frustration for those who were long volatility -- we awoke this morning to find global markets awash in green. With summer officially upon us, baseball in full swing and the World Cup up for grabs, it's time to take the temperature of the tape as we edge through The Eye of the Storm.

The Good

  • The transports, perceived by some as a leading indicator, broke through their downtrend early last week, as flagged in real-time on Minyanville. Further, the ability of this sector to hold those gains despite the fright in FedEx (FDX) is constructive as the reaction to news is more important than the news itself.

  • S&P 1115 is a level that's been circled on technical radars for a long time, a make-or-break of sorts for those who watch such things. While we meandered in a tight range towards the end of last week, each and every close was above this important inflection point and that may be considered a bullish basing.

  • The Yuan rose the most since July 2005 after China's central bank ended a two-year peg to the dollar ahead of the G-20 this week. While the move is aimed at curbing inflation in China and shifting investment towards service industries from export-manufacturing, according to Bloomberg, a case can be made that this posturing was more political than structural.

The Bad

  • The financials have been the carrot to the market horse and BKX 50 is the level of lore in that regard. We pegged that level on Friday and it remains front-and-center as we power up this pup for a fresh five-session set.

  • Social mood, as discussed last week. Rallies are great but they do little to quell the swell of societal acrimony that continues to build as a function of under-employment (one in six), financial fixation (Goldman Sachs (GS)), and push-back against "big business" (BP Plc (BP)).

  • Volatility measures continue to get hammered, with the VXO off 50% in the last month as the 200-day moving average comes into play. With the VXO near voting age, we would be wise to respect the "other side' of a complacent market.

The Ugly

  • The State of the States, as first posited in our Ten Themes for 2010. A growing number of states are facing financial strife, including New York, California, and Illinois, and folks are growing increasingly anxious. "People think we're becoming a Third World country," said one California woman in a recent article, "They don't understand."

  • The Deepwater Horizon Oil Spill is more than just a horrific environmental disaster, it's sowing seeds of protectionism -- the "other side" of globalization -- and triggering all sorts of corporate posturing, such as last Friday when Anadarko (APC) accused BP of "gross negligence or willful misconduct." When the going gets tough, the tough take care of themselves and that doesn't bode well for anyone other than the lawyers.

  • The Phantom of Deflation looms large on the horizon. While that may not be today's trade, it's most certainly something to keep in mind, particularly when the screens are green. We've discussed the alternative paths to economic recovery and while we must respect both sides of the ride, we should remain conscious that a cumulative comeuppance is more likely a matter of "when" rather than if.

Lot's going on as we edge into a new season and countdown to quarter-end. Good luck Minyans and I'll see you over on the Buzz & Banter.


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