Monday Morning Musings

Mr. Market is not in a good mood this morning as concerns swirl that this week's EU summit will not produce any tangible solutions.  Asian markets were lower across the board overnight, and Europe is under pressure again this morning.

Spain made a formal request for 100 billion euros to recapitalize its banks.  And peripheral yields are on the rise with selling in both Spanish and Italian bonds.  I too am skeptical of a viable solution from this week's summit, but I do hope they can at least come up with something to assuage the markets while they work on these big issues.

Here in the US I have not seen much in the way of meaningful corporate data or market moving economic news.  May new home sales did come in better than expected, but it hasn't mattered much so far.

We were also expecting to hear from the Supreme Court on the healthcare decision, but that looks like it will be delayed until later this week.

Flight to safety buying is benefitting Treasuries this morning, which is pushing yields down to 1.61%.  Gold is also hanging in there, higher on the day near $1571.  But nearly everything else is lower on the day, led by declines in the energy sector.

As for the VIX, I said last week I didn't think it would stay under 20 for long.  Today the VIX is up +12% so far to 20.35.

Trading comment: The S&P 500 has taken out last week's lows at 1325 and it looks like a test of the 1300-1307 level is in the cards.  Of course, a lot depends on the EU summit this week.  Everyone is already pricing in a negative outcome, so there is always the possibility as we have seen lately that the worst case scenario doesn't come to fruition and the market bounces on a relief rally.  We also have quarter end this week which could see some window dressing buying.  That said, we continue to position portfolios conservatively and want to remain defensive as we enter Q2 earnings season.

KAM has long positions in VXX