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Eurex: Eurostoxx50 on a Bull Run


Pasquale Galassi / 77sigmatrading.com

Market: Eurex EURO STOXX 50 Index Futures, $FESX_F

Trading Levels: 2600

Target: 2510

Long/Short: Short

Stop Loss: 2620

Since the 16th of November the DJ Eurostoxx50 Dec futures rose from 2425 to 2613 or 188 points, it means roughly 7.75% from November lows.
The surrounding themes which sparkled this “bull” run have been: 

• the agreement between the European officials to keep Greece afloat
• and the certainty that an agreement between the Republicans and the Democrats in the U.S. will be found before year-end in way to avoid the so called fiscal cliff.

The problem here is that there is no definitive solution, although from one side the bond buyback that is supposed to cut Greece’s debt by €25 billion and convince the International Monetary Fund to approve a loan payment that the country desperately needs to stay above water may be successful and bring calm to the markets for the next couple of months; while on the other side both Republicans and Democrats urge quick action, but none is ready to find a compromise in a political stare-down that shows no signs of breaking.

Let’s now bring the market picture into the political framework just described: 


If the $FESX_F (Euro Stoxx50 Dec Future) will close below the 2600 mark we can assist to a new “short” run, given the picture we are seeing in the $Bund market where the breakout of the 143.50 level will lead traders to sell short the $EURUSD, causing a snowball effect in all three asset classes.


Although, the first breakout has been invalidated, the common currency could try to regain the 1.3200$ mark. The question is: What could be the driver?


At this point we have plugged the market picture into the political framework, but as you all know what matters most in trading is timing, Markets can remain irrational longer than you can remain solvent.

Given this trading hypothesis the next question we need to answer is: What can invalidate it?