Yesterday we saw a return of the big program buying in the stock market.

There was no real reason for the grinding higher action we saw throughout the day – most of yesterday’s news was actually pretty poor. The previous night and earlier in the morning, the S&P 500 stock futures had actually drifted lower.

http://themacrotourist.com/images/Azure/ESM4Jun0414.pngS&P 500 futures Tuesday night and Wednesday</a> </div>

But then the market opened…

And the buy order went to work. Why do I feel so confident that there was a big program buy order? Because I used to execute these orders. The action was entirely consistent with this type of program buy.

http://themacrotourist.com/images/Azure/SPXJun0414.pngS&P 500 Index over the last couple of days</a> </div>

Once the market opened, the trader got to work getting some stock in at lower levels. As he moved it up, he met some selling, so he eased up, but kept a decent bid to the market as he needed to get in a fair amount of stock throughout the day. But he timed it so he could save enough ammo to close the thing at the highs.

Obviously there is more to the market that just one trader, but I think that yesterday’s action was dominated by a big program buy. Yesterday’s trading has all the hallmarks of this type of order.

Now the real question is whether this was just a “get it done before the ECB meeting on Thursday and the unemployment number on Friday,” or whether this represented the start of a much larger portfolio shift into equities.

My gut tells me that this was simply an institution squaring up their book before the two big events. But we will know for sure in the coming days. Keep on the look out for non-news sensitive buying. If that does return, then for your day trades, don’t keep playing for the dip, but instead assume that any buying will continue for at least the rest of the day. These program buy orders typically take a whole day to execute. If you see that sort of action in the morning, then chances are that order will overwhelm the market for the rest of the day.

However, my guess is that this order is not going to return, and all that yesterday’s action did was set the bar all the more lofty in terms of market expectations for the ECB’s move.

We are headed into two very important releases – the ECB meeting and the US unemployment release – with very stretched stock markets.

The S&P 500 has been basically on a tear straight up since the middle of May:

http://themacrotourist.com/images/Azure/SPXGIPJun0414.pngS&P 500 Index trading over the last month</a> </div>

The European stocks have not been rallying as hard, but given that they are in the process of pushing their interest rate down into negative levels because of the threat of deflation, their stock market is amazingly resilient:

http://themacrotourist.com/images/Azure/SX5EGIPJun0414.pngEuroStoxx 50 Index over the last month</a> </div>

I sure hope for the market’s sake that Draghi doesn’t disappoint.

A decision from the ECB that fails to live up to expectations has the potential to rock the global financial markets.

I continue to think that the odds favour this outcome, but Draghi has surprised us before.

Either way, keep your wits about you – we are entering into an important couple of days for the markets.


Headlines

As I was skimming through my research feed, I came across some stories with the following titles:

Is This the End of the Secular Gold Bull? Kiss Gold Bull Market Goodbye

High-yield debt: The best of bonds and equities

For the gold headline, all I can say is that this is exactly the sort of pessimistic story that I want to see regarding precious metals.

The author of the gold story happens to be a pretty bright guy, so I am not going to give him too much grief. But these sort of despondent pieces are necessary ingredients for a bottom. I welcome his doom…

And as for the high yield debt being the best of both worlds… What can I say? High yield bonds are trading at record low absolute levels and pretty well as tight as they have ever been on a spread basis. The idea that this is now a great time to get into high yield bonds because they “offer the best of both worlds” is ludicrous. I would counter that at these levels, high yield bonds offer very little income protection, with basically no upside.

Both the gold and the high yield debt headlines affirm to me that you need to be on the other side of both of these trades. These ideas are main stream thinking, and what is obvious is usually wrong.


Positions

http://themacrotourist.com/images/Azure/PositionsJun0514.png</p>