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Not Enough Panic To Buy Yet

 April 23, 2012 08:13 AM

(By Cam Hui) Now that we are nearly at support on the Spanish IBEX 35 Index, my inner trader tells me it's too early to be buying. We need to wait for more pain and panic to materialize. My inner investor says that signs of value are starting to show up in a number of natural resource sectors and it's time to start accumulating positions in resource cyclicals.

Spain a contrarian buy, but not yet
Soon after I wrote my last post (see Why I am buying the pain in Spain), Macro Man and I seemed to be on the same page when he wrote that Spain is unlikely to crash:
To TMM (ed. TMM=Team Macro Man) it would appear that the only scenario that supports selling right now is one where Spain crashes, doesn't receive assistance, defaults and the euro and then Europe break up. Now call us picky but though that indeed is one potential outcome there are a lot of other scenarios and most of them involve some internal resolve, even if it does involve printing your amount of money. Elections may change the leaders of some countries but as the UK Con/Lib coalition is finding out, they are but the tip of the iceberg of the machine that is government. There is enough mass below the waterline that knows where its true interests lie to stymie any threats to them. Yes Minister indeed.
In fact, they were piling into the Spanish trade:
Having piled back into equities last week the current mood should be considered as red flags to us and we really ought to run with the pack, chop the longs, swing short and whip up the doom. Instead though TMM have decided to do the reverse and have broken the glass on the cabinet containing their Kevlar Gloves and bought some Spanish stocks of international appearance ( braced for comments). Hold on tight !!
Recall that my original premise for buying Spain is to wait for a period of maximum pain and panic (see How much more pain in Spain?). The defining moment was the 2009 lows, which would be a level of technical support for Spain's IBEX 35 Index.

Now that we are nearly there, I don't think we've seen sufficient pain and panic in the markets for Spanish equities to be a contrarian buy yet. My inner trader thinks that TMM should be following his initial instincts to "run with the pack, chop the longs, swing short and whip up the doom."

Consider this chart of European stocks, which exhibited a break of an uptrend, but the index is not showing any signs of panic yet.

What about the euro? The EURUSD exchange rate is holding in nicely, thank you very much.

So are 10-year Treasury yields.

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