MidSession Review:

The history repeat it self.

This is what happened after Moody's downgraded US bank stocks on 22 of June.

Here comes the relief rally in bank stocks.

Moody's just downgraded five U.S. banks amid a broad reassessment of big, global banks, a move that has been widely expected since the ratings firm put 17 banks under review back in February.

Moody's downgraded 15 banks in all (two of the 17 banks had been downgraded earlier this year).

Bank stocks are actually rising on the news, as the cuts weren't as severe as previously expected.

If you were expecting a sell off following the Spanish debt downgrade take a look at the market:  Stoxx50 up 0.50% to 2,468.72, German Dax up 0.81% to 7,263.85,  Italian Ftsemib up 0.56% to 15,527.03, the Spanish Ibex is still in negative territory down 0.23% to 7,650.40.

The euro  recovered from an earlier stumble on news of the Spain downgrade, trading at $1.2915, up from $1.2869 in North American trade late Wednesday.

The reason about all this celebrations: the same reason why US banks rose on Moody's downgrade, the cut's was not as severe as expected, and above all on expectation that the move will lead the Spanish Government to ask for a bailout.

For this reason Italy was able to sold Eur 3.75 bn of three-year bonds at only slightly higher yields than in the previous month. The Italian treasury paid a gross yield of 2.9% for the short-dated debt with a bid to cover ratio of 1.7 times. At the last auction of the same maturity debt in September the Italian Government paid a gross yield of 2.8%.  Three years yields have sunk  sharply from 4.75% at the end of July following Draghi's speech, but they rose from 2.8% to 3% this week as the rally fades on Spanish concerns.

However S&P was only aligning itself to Moody's which also has a negative outlook for Spain and rates the country at the lowest end of investment grade with a Baa3 grade.

Spanish bond yields moved toward the critical six percent after the downgrade, at midday the 10-year Spanish benchmark yield traded 0.55% higher to 5.817 percent spurring investors hopes that the bailout is near.

Commodities prices were moving higher in the European morning session, with crude oil for November delivery  up 86 cents, or nearly 1%, to $92.10 a barrel as supply data loomed and Middle East tensions supported prices. Gold for December delivery  rose $7.30, or 0.4%, to $1,772.40.

In US the good news come from Citigroup, which upgrades US equity to overweight

On the macroeconomic side US Jobless Claims came in at 339k better than the 370k expected, the lowest reading in four and half years. The trade widened to $44.2 billion in August from $42 billion in July, due to a higher fuel bill as the price of imported oil spiked.

The SPX dec futures is pointing north ahead of the opening bell rising 0.54% to 1433.75, the Russel 2000 is gaining 0.66% to 828.9, the Nasdaq future is rising 0.58%.

Macroeconomic data are supporting the long side of the Market, therefore if you have a short bias be careful and wait for the market to show you weakness before jumping on. On the FESX 12-12 longs will be in control up to 2480 where a bit of shorts will try to enter the market. Keep your cool.

Have a great one.

Originally posted at www.77sigmatrading.com