Markets were significantly higher this morning amid news that a solution to the Cypress banking situation had been implemented. S&P Futures were nearly 1% higher overnight, but that strength was met with aggressive selling near the cash market open. Throughout the morning, numerous headlines had surfaced that the 30% haircut depositors in Cypress would be taking could be the template for solving banking issues throughout the rest of Europe. Additionally, there were rumors of an impending downgrade of Italy’s sovereign rating and increased fear of a bank run. As you can imagine, Italian banks were hit extremely hard, and weakness overseas has bled into domestic markets. A current levels, all major indexes are off about 0.5% on the day, and near the lows. Bonds have seen a bid creep in as the day has gone on, and are currently up 0.2% on the day after a very weak open. Metals are near breakeven, while the miners are off about 1% on the day.
CHART OF THE DAY
Zions Bancorporation (ZION) – Shares of the regional bank have been very strong as of late, up about 20% year-to-date and nearly 40% since bottoming last July. ZION recently broke to new 52 week highs and have since consolidated nicely back to its 20-day moving average.
Despite its recent strength, short interest toward ZION remains elevated, at 9% of the company’s float. Should the shares continue higher, this creates the potential for short-covering rallies going forward. I like an entry here with a stop on a close below 24.50. I would initially target a move to 28, with 30 being a stretch target.
WHAT I’M EXPECTING
A continuation of this news-driven tape. Given that there is still a lack of clarity out of Europe, the potential for violent swings has increased. That said, it’s preferable to limit your exposure on either side of the market here and now, and wait for the situation to resolve itself.