Cyprus, Russian Oligarchs, Treasuries and the S&P 500 – No Issues
- Posted by Greg Harmon
- on March 26th, 2013
Many people are scratching their heads. Was Cyprus a big deal or not? The stock market clearly decided no vacillating between 1538 and 1565 on the S&P 500 Index ($SPX) depending on whether the deal was on or off. But whether it impacts the global economy or not, it seems strange that it has not impacted US Treasury prices all that much. There has been no flight to quality. The Treasury ETF ($TLT) has moved up all the way from 114.62 to 117.22, 2.3%. This seems to also indicate that there is no global panic. Is it case closed? Cyprus is done and over with no consequences? That would have been the lead story, if we stopped the markets at 9:45am Monday. From that point forward the ‘sell the news’ mentality kicked in and drove the US markets lower. But as that happened US Treasuries barley moved. This creates some confusion in the relationship between US Treasuries and the S&P 500. On a very short term basis this pair seems to be range bound. The ratio chart below over the last month shows the bounce retracing
38.2% of the move lower from February 25th with the falling Simple Moving Averages (SMA) coming in to cap the move higher. The Relative Strength Index (RSI) has remained bearish during this bounce and is now running flat. This could go either way but favors the downside, a flow continuing out of Treasuries and into US Equity markets. Moving out to the weekly picture makes thing a bit clearer. Since March 2012 the ratio has been working on a bullish Crab formation. The target for the ratio before that bullish turn is a ratio
of 0.635 or another 16% lower. It does look like a bounce may be coming in the short run with a rising RSI and improving MACD, but these are both still very bearish. So in the end maybe Cyprus was not that big a deal, but just happened at the right time. That could all change of course when a few Russian oligarchs show up at the door of the local Cyprus bank looking for some cash. There are many opinions on what will happen and frankly most are useless noise. But the price action tells the truth. Follow it. And right now it is pointing away from Treasuries and into Stocks.
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Dragonfly Capital Views Performance Through March 2013 Expiry
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded since 1986 and held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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