We have tagged the 200 day MA, now what??

It was more of the same price yesterday as Wednesdays as the initial pre-market weakness and sell off after the Philly Fed numbers (which was much worse than expected) was met with buyers right in front of globex lows . There was also a fair bit of program trading accompanying this buying as again most intraday traders would have been thinking to get in on the short side after the Philly numbers. The futures got to a point where they came up against the hourly down trendlines (for the ES anyway) and a good battle went on at these levels. The false breakup/false breakdown algos were also at it and chopped it up for about an hour at these levels making it very hard going for the day traders looking to get long about the trendline and short if it failed. Overall, the market held up pretty well until about 11.30am and then the rotational trade back down started to occur as it did the previous day.

The ES and the SPX cash have now both tagged the 200 day moving average so that longer term downside target has been met. Whilst most sentiment measures and quant stats still indicate odds favoring higher prices from here, the worrying thing and what I call the X-factor is the Greece situation. In normal circumstances I would lean to be an intermediate bull from here but there is definitely caution as indicated by a significant rise in the VIX even on a day where most of the cash indices finished slightly up. This indicates a bit of fear still and that mainly revolves around the situation in Greece where there is still great uncertainty about how to resolve their debt problems. Credit spreads and CDS for the European sovereigns are at record wides and that fear is spilling over to the equity markets and other assets. There has been much talk that a default by Greece would trigger a full blown reactionary sell off as when Lehman collapsed. Under the hood, cumulative ticks last night finished at -60,000 after spending half the day above 5000 (collapsed after 12.30pm ET). Another interesting fact is that we've had 10 straight last hour sell offs. Normally the definition is that the first hour belongs to the amateurs and the last hour belongs to the professionals. If that's the case you can make up your own mind as to what that streak is telling you. I very much doubt that many traders will be holding longs into the weekend without protection (likely to be hedged as judged by the rise in VIX). Interestingly skew in the SPX puts has finally started to pick up and has now risen quite sharply at 148% (at the money compared to 10 delta put) compared to only 128% only a week ago. It could be that iron condors may start to look attractive again, with some protection of course. Other trades that may be worth looking into are ratio spreads and BWB's.