Sovereign risk - early signs. Fri May 22

Markets are getting jittery about sovereign risk or rather the potential for sovereign risk further down the track because of massive deficits and bond issuance in Western economies, especially Great Britain and the USA. The US dollar is weakening and gold is profiting from this fear. Meanwhile both the bond market and the stock market fell last night in the US (stock markets were also down 2%+ in Europe) with basic resource stocks faring worst as fears that the "green shoots" are minimal have grown.

As was the case yesterday, our market is having a surprisingly calm time of it. Down just 46 points after clear outperformance yesterday. It's a long weekend in the UK and America with public holidays on Monday and with overnight futures contracts slightly firmer it's possible that we're allowing for a short covering rally. There may also be a safe haven effect because although we now have a large budget deficit, as a percentage of GDP it's relatively small: for example, US analyst Denis Gartman is recommending exposure to Australia and Canada because of healthier public finances and commodity trading with Asian countries.

As for my positions, it's noon and lgl is up 10, mig down 2, cba down 25 and qbe up 5. Apart from lgl where I've sold a few June 300 calls at 31.5 (v 22) the other moves are minor. There's some significance in the cba move though because it has confirmed a lower high on Wednesday with a new low this morning.It's a bit easier to see on a 60 minute chart.

I've reinstated my short position in mqg with the purchase of June 3200 puts at 163. I wanted more evidence that the correction was over and it looks like the pennant style pattern has completed as the stock has traded through both the recent lows of 3336 and 3303. It's at 3329 right now.

1.18 Buying some June 1414 puts at 50 in Santos, sto, an oil and gas producer. The stock had an equity issue recently hence the sharp fall in price followed by a 3 wave retracement. It's worth a try on the short side having stalled for 3 days and then broken that small range.
2.32 A bit more on the cba trade...I know it's not a particularly high quality position as it's been in a trading range for over two months now but given that I'm long these June 3500 puts I'm willing to keep them while there's minor weakness.

4.01 Approaching the end of day and the market is still waiting for further information as it were, it's traded in a 20 point range since the overnight markdown which is pretty tight and is down 51 points now. Very little change since earlier - I only got half my position in sto as it fell from 1432 to be 1417 now. Generally it's been a day for the defensives which today includes the banks.