Mostly positive economic news (Chrysler is selling cars!) and lower Australian interest rates got the markets going higher pre-open, but not much has happened since.
BLEAK EUROPE VIEW
The one thing that is dependable is how bad the economic situation looks in Europe. It looks like the USA in 2009, but add years of dithering about how to short up the liquidity and debt crisis. The U.S. did take some concrete steps rather quickly in hindsight (which was not bad) to get things going. The Europeans seem to be coming to the same conclusion as the Continent faces a year of anemic growth.
KEY ELEMENTS
The constant specter of that malaise will continue, but note two things:
1. The Euro is holding up.
2. The troubled governments for the first time are toeing the line.
IT WAS A LOW
Looking back, 2009 was also the dead bottom of the U.S. equity market. Maybe money is starting to finally look past the crisis (and the bottom of the hole) and onto the potential of more solid (less government debt driven) growth in the future. All that no cost money will have to go somewhere this year; it just needs a reason.
JOBS DATA
For this week the driver is the Non-Farm Payroll (NFP) report at the end of the week. Usually, a pretty reliable ADP report provides a glimpse, but that has not been so over the last couple of releases. The S&P 500 SPX is trading 1446.87 and trying to get back over 1450. The VIX is down to around .35 to 15.97, just to drop below the 16 handle. The VIX here is just in a holding pattern until the payroll report. Last month’s brought a melt up that singed all the calls sellers, but this time the VIX should stay firm or higher until Friday.
BULLISH VOLATILITY TRADE
A good way to trade a slightly bullish volatility view right now would be to buy short term VIX October ATM call spreads. The VIX future is trading close to parity when this far out to expiration and provides the best/cheapest opportunity for a move higher into the NFP report at the end of the week. The ideal close would be right before the report.
