The Spanish Sell-Off and the MCD Indicator

The worries began late last week, as rumors reflected by movements in the Euro and Dollar. By Friday's close, the market was in the red and uncertain.

This morning, with Spanish bonds selling so low, their interest so high, the Euro market went into panic. All the usual fears came back to haunt and took the markets by storm. First the Eurozone, then Asia and went it hit the U.S., we where down by 200 points on the DOW.

But this won't last long... Why? Because McDonald's couldn't meet estimates. They reported bad numbers, so did Chipotle last week.

What am I talking about!?!?!

The relationship goes back to consumer sentiment. As people feel more comfortable with their pockets, they stop going to MCD and CMG for dinner, instead heading for upscale eateries and cutting back on the fast food. Just like Walmart, when it was reporting growing earnings during the 2008-2009 downturn.

The consumer is consuming. Hotels reporting las week gave great numbers and their outlook was great, people are spending more. And thus choosing a specialty bistro over fast-food. And when the consumer is consuming, that means growth will follow.

I don't expect this drop to turn into correction, I actually don't expect it to last that long. To me, this is a buy opportunity!

References:

• CNBC: What Happened in Europe That Spooked Markets
• DOW Index
• McDonald's (MCD Quote)
• Chipotle Mexican Grill (CMG Quote)
• Walmart (WMT Quote)

At a stand-still...

We've had a continuous climb since prior to the Greek elections. It's all been about hope. Hoping for QE3, hoping for changes in Greece, hoping for unified taxation in Europe, hopes for better domestic job and housing numbers.

With Antonis Samaras taking over the Prime Minister office, it felt as if the hopes where going to come true. However, as I mentioned in a prior blog, the road ahead is still very uncertain for Greece, the EU and the whole domino that follows.

Behind the scenes we've seen money leaving the European Union and flowing into the United States (Euro vs. Dollar) at a fast paced rate. This added to the fuel in the hopes bull market and we had an almost week long bull run.

What goes up, must come down and eventually, the bad news caught up with the market, fueled by Moody's downgrading 15 major investment banks (via CNBC). Yesterday we saw one of the biggest drops in the market this year.

The technicals show that we have two major resistances (see below). And we bounced off the lowest one almost predictably (DIA $128.34). Then we broke below the first major support (DIA $126.05), the next support is at (DIA $123.85). The trendlines show we may have some up-side, but it'll be short lived. Keep an eye on the lower resistance.

Chart built at StockCharts.com

References:

• Antonis Samaras
• Europa (European Union)
• Euro vs Dollar (Real Time)

The Greek Elections

The polls have now closed. The eyes of the world are watching these elections closely.

Why? Because the results may affect the future of the European Union, the Euro and the world wide markets.

Why? Because if the conservatives win, the hopes are that the party will work with the ECB (European Central Bank) in repayment of debt and austerity measures. If they don't, then a separation from the EU (European Union) is imminent.

Why? Greece uses the Euro as its currency. As such, it is unable to devalue the currency in order to be able to stimulate its economy. Germany, France and all the other big kids are not going to let that happen to the Euro. The option would be to drop the Euro and go back to the Drachma, its older currency.

So what if they leave the Euro? The European Union has a lot vested in Greece, they've bought their sovereign debt when nobody would, so did some banks all over the world. Their exposure is too great; They would be left holding a bag that would probably never be paid. That would be a historical loss of money. Forget Lehman Bros., this would be bigger.

And it could get worse... The events above could initiate a chain reaction (a.k.a. contagion) on other Euro countries with bad economies: Spain, Portugal, etc. could follow and leave the EU.

How to trade this? The world wouldn't come to an end, if a breakdown would happen. It would just create lots of buying opportunities (a drop!). As history has told us, panic sells usually lead to a rise. I'll trade that any day. Plus, U.S. markets exposure has now been reduced. So, I'd take advantage of knee jerk reactions, and then take profits. Short term, though, expect a drop. That's my queue to action.

References:

• ECB (European Central Bank)
• Europa (European Union)
• Greek Drachma
• Euro vs Dollar (Real Time)
• Lehman
• Lehman Brothers (Wikipedia)

Today is Quadruple Witching Day

What is Quadruple Witching day? Investopedia defines it as: A day on which contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire.

Today is the second out of four days in the year, where we have a collection of vehicles expiring. This creates a huge amount of activity in the derivative markets. Volume and demand go up, mixed together with any kind of news (like Greek elections and bank easing), you have a historically upward trend.

Depending on the circle, Quadruple Witching is also called Freaky Friday. Expect markets to go up, grind and drop the following week.

References:

• Investopedia: Quadruple Witching
• CNBC: Quadruple Witching
• CNBC: What's Quadruple Witching?
• OptionTradingPedia: Quadruple Witching

Welcome!

To many, the stock market is a big unknown, where people throw their money, most to see it lost. To others, it's a form of legal gambling, sometimes you loose money, and if you are lucky, you make money. To some, it's a job or a source of income. To us, it's a passion.

I say, they are all correct. When you show up to the party, it's up to you if the party will fun, boring or chaos. You call your own shots.

The market is also a collection of emotions: fear, greed, anger, exuberance, apathy, confusion, joy, irrationality. You truly learn about yourself and others, when the going gets tough OR good.

In this blog I plan to write down my perspective, trades, opinions and share insights about the market. The equities and options markets have treated me well, and I plan to share how and why. This is geared towards all experience levels.