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Overseas Catalysts Dominate the Fourth of July

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Taking a look at Greece, Egypt, China, and France.

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Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

Turnaround Tuesday has arrived in the 'Ville with the ranks thinning with each and every session. This is the first Fourth of July holiday week I've worked in a long time - much to the chagrin of my wife and our little girl - but it could be worse - it could be raining. OK, it is raining, but it still could be worse!

In terms of our near-term directional catalysts, there are two dynamics percolating overseas. The first is the social unrest in Cairo and the ultimatum issued by the Egyptian military, which is due to expire tomorrow.

The second is the ultimatum in Greece, which has three days to satiate the troika's requirements to receive the next tranche of aid; this is the international equivalent of the boy who cried wolf.

In other news, interbank lending rates in China - Shibor - have declined to 4% vs. +/- 9% last week. (Shibor on average over the last year is roughly 2.8%.) The People's Bank of China has attempted to normalize these rates and thus far, it has been effective in doing so. Given our attention to this dynamic, this must be respected; the question, of course, is whether it will continue.

I will also draw your attention to this article in The Telegraph, which speaks to the social mood in France. While the French elections won't be held until 2017, the anti-euro rhetoric is interesting nonetheless; if they feel this way in France, you can only imagine what they're thinking in Berlin.

Stateside, the first day of the third quarter was decidedly bullish, although the bloom faded from the rose as the session wore on. Of particular note were the money center banks, such as JPMorgan Chase & Co. (NYSE:JPM), which came for sale. Conversely regional banks, which have traded great of late, continue to be better bid. This matters for those of us who watch the KBW Bank Index (INDEXDJX:BKX) as a tell; as go the piggies, so goes the poke.

Through a tactical lens, our technical Danger Zone remains in place; this is only one of four primary metrics, with structural forces (rates, FOMC), psychology (perception is reality), and fundamentals (will come in to play in the next few weeks) being the others, but it does provide a tangible context with which to measure risk.

The S&P (INDEXSP:.INX) holiday edition range is 1600 on the downside, 1623-1635/40 on the upside; Mr. Valentine has set the price.



Random Thoughts:
  • My checks around the Street indicated that most dealers are half-staffed, which is consistent with what we thought we would see: Agendas + thin ranks = volatility.
  • Loose lips sink ships, but loose grips (on the handlebars when trading) make for a smoother ride.
  • I'm not involved in gold, but my sense is that the recent lift is a counter-trend rally. I'm not smart enough to know how long it will last, but I'll venture to guess another $30 to be consistent.
  • The more we rally into earnings, the higher the bar will be set for the earnings.
  • We've been talking about social mood as an unintended consequence of policy for a long time; that keeps popping into my mind when I see the Egyptian revolution evolution. Below is a recent picture of Tahrir Square in Cairo, lest you wanted a visual depiction of what social unrest looks like.

R.P.

Twitter: @todd_harrison

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Position in SPY.
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