5/17/2010 Pre-Market Commentary

Volatility is high pre-market ans once again it is difficult to put the puzzle together. We sold off hard last session with significant volume and strong institutional participation. The Euro and fixed income led the charge as has been the case of late. We saw some strength overnight but this time with just luke warm institutional participation so big traders haven’t been as quick to buy this market. This is beginning to be reflected this morning as a strong bid returns to the 10s , though the EU continues to rally against the huge flush in the Asian markets overnight. Despite that though the tell tale carry trade is still firmly in its down trend as the uber-barometer of risk appetite. Gold in our view is also a bit overbought and a poor indicator of flight to quality. Platinum has also not followed to the same degree and we surmise many institutions are short gold long platinum. Crude continues its sell-off as well which puts the nail in the coffin as far as we are concerned. All this said we are likely weaker than many would believe. The structure is a bit tricky though as both the high and low side have some very vague levels making it hard to find the lines in the sand as we call them. Despite inherent weakness I have a feeling the OH isn’t as solid as I would like and as such my first instinct is to scalp there. With the increased volatility we could easily poke our head too far out the top and test the same key levels from last session above. What is the true level? We can’t answer it so we have to be cautious and potentially pass on a full rotational trade. It could fail at 40/41/43/44 or even stretch out to the daily R1 and the key acceptance area at 48/49 and then the rejection at 50. The high side is our favorite to fade if we get there but if order flow permits we may fade one of the lower levels. We shall see. On the short side we have the same issue. 29 is a great spot but again if we poke through too much we may see a fast market and whippy volatility stopping anywhere between there and 26 or the acceptance/rejection between the YL & the day session S1. If we don’t get a fade at 29ish we will likely wait for the retest of the OH and the Globex S1 around 20/21 which may hold as interim support today. The bottom line is we can’t call the S&P directly at a lot of these levels so we will look to the bid in the 10s, the carry trade, the Euro and any inefficiencies between the other equity indices to figure it out. The Empire Mfg number was TERRIBLE as I write this so that may be the feather that knocks us over. We shall see…