Traders blog: An interesting week ahead

Last week was pretty boring for traders, so here’s hoping this shortened week will provide some excitement and decent trading opportunities.

We have our own Reserve Bank meeting on Thursday as well as the European Finance ministers meeting at the end of the week to discuss Greece’s problems. Throw in the unexpected rate rise out of India last week and all of a sudden, things start to look interesting. Although analysts are not factoring in any rate cut in SA, you could be forgiven for thinking the retailers knew something that we don’t. They have all been hitting all-time highs before finally cracking on Friday, with Woolworths falling 5% and Truworths dropping 3,3%. I guess they had to pull back at some point; they were all looking very over bought and trading at levels higher than before the recession hit last year. And I don’t think the South African consumer is much better off.

As I said last time, when everything is looking perfect, be careful. The VIX (volatility index) hit another low for the year yesterday closing at 16,8%. With a few headwinds popping up over the weekend, it is definitely time to buy some downside protection. The Greek story hasn’t really gone away and their deficit problem hasn’t either. Greece has been pushing the European Central Bank for low-interest rate loans but German Chancellor Angela Merkel has been pushing the other way and has called for sanctions against nations that breach their deficit limits. I am going to bet that Greece will walk away from the summit this week empty handed and the ministers will face a stalemate on how to deal with its members that breach limits.

That would probably force Greece to turn to the International Monetary Fund for a loan, but that would pose its own set of problems.

Looking over to the bond markets, they are also starting to price in uncertainty as the yields on the 10 year Greek bonds pushed out to 6,44%, the highest level since the end of February. Bond markets tend to lead the equity markets and are generally quite good leading indicators. If there is going to be a re-pricing of risk, then the dollar should strengthen and the Euro should weaken and emerging market equities should drop. Read ‘should”. But I’m not going to wait around, I think it’s time to buy some downside insurance. This is going to be an interesting week.