Rumors In Europe Causing Short-Covering

The market was lower most of the day yesterday until late rumors surfaced that China might be willing to buy up some Italian debt. That caused the shorts to scramble, and the market rallied strong into the close. Although volume still finished below that of Friday's levels.

I doubt that China is looking to buy much sovereign debt in Europe. Maybe they would be looking to buy into strategic companies, like oil companies (Eni), electric producers, etc. Those would be strategic investments for China, not simply trying to throw the continent a lifeline.

This morning, the futures were lower until more rumors surfaced that Germany and France may be meeting to announce some support for Greece. So it seems like a lot of people are leaning short, but skittishly so as they look to cover those shorts on any perceived positive news out of Europe.

This type of volatility is one of the reasons that the VIX remains at extreme elevated levels. Despite this morning's rally, the VIX is still higher at 38.75. And Friday's options expiration will likely keep volatility elevated this week.

In corporate news, Best Buy (BBY) reported earnings that fell short of consensus. As a result, the stock is getting hit for -8% currently.

The dollar is lower today, which is boosting commodities. Oil prices have rallied back to $89, while gold prices are also higher near $1827.

The 10-year yield is trying to get back above 2.00%, but not having much luck so far. I recently added to my TBT position looking for at least a small bounce in yields.

Trading comment: The SPX has bounced a quick 30 points from yesterday's lows, and it is hard to tell which way options expiration will exert its force on the market for the rest of the week. But as I have said, until we get some actual improvement in the landscape (as opposed to rumors) I am maintaining our defensive posture and fading most rallies.

long TBT, SH