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UK And US Among Top 5 Weekly Sovereign Deriskers

The week’s biggest (sovereign) CDS movers have been released, and we have some new entrants in the most endangered species list. While by now nobody will be surprised that the UK is a consistent top 2 player (coming in this week with $319 million in net notional derisking, this making it the 8th week or so the country has made the top 3), only behind Italy and its $452 million in net notional, and just in front of last week’s #1 Brazil, the presence of the United States at #4 should be a little unsettling. It has been months since the US appeared in the top 5. And just like in the long gold case, the same types of existential questions once again arise when the interest in US CDS picks up: who gets to pay off your contracts in the case of an event of default? Elsewhere, the presence of Korea and Turkey (or Australia) in the top 10 should not come as too surprising. On the other end, short covering was violent in CDS of Spain, Hungary and Portugal – Europe’s newest lepers. Is the CDS community concerned the EU can actually pull out a rabbit out of the hat that actually works for once? Hardly. The top 10 reriskers also saw the inclusion of France and long-forgotten insolvent Greece.

Following my Parameters

1) Relative Strength or Weakness- there’s no reason for me to pick from the mushy middle, as the biggest movers come from the best and worst 5% of the market.

2) Abnormal Volume- it can be abnormally high or abnormally low, but I’m looking for stocks that are doing something different that they’ve done in recent days or weeks.

3) Abnormal Range- again, high or low tells me something…average tells me nothing.

4) Identifiable Support(Longs) or Resistance(Shorts)- I have no need to be the first, that’s for the really brave and really smart(maybe).  If the idea is that good, I’ll have days/weeks/months to milk it…in case you haven’t heard, the second mouse gets the cheese.

4) News Absorption- I like to participate AFTER news events…it gives me a good idea of the temperament of a stock’s owners. It may have broken out from a base.  It may have been crushed but then built a base.  It may have reacted poorly to a “great” report. In any case, I want to see how a stock reacted the last time there was real news, and position myself on the side that has taken control since then.

6) Doubt- this is a tricky one, but our ideas should not be SO obvious that our relatives and neighbors love the idea.  Buy worry, short hope.  Buy after panic, short after euphoria.  I’m not saying to ignore an idea because your Twitter stream agrees with you…haven’t we filtered our list to only those we respect?  But take a second to check your spot on this curve, and where you sit on this idea.