Tonight, during the euro leaders summit, all issues seem to have be resolved, so that the politicians have bought more time, to get into next elections safe. As, pointed out in my weekend blog, 50% losses is to be absorbed by the banks. I made an error in weekend analysis that 50% of greek debt (340B euro), is all on the banks. Thanks to david, who pointed out that 1/3 of greek debt is on ECB/IMF and another 1/3rd is by greek banks. So, only 1/3 of the greek debt is being shouldered by the big banks of europe, outside greece, and this would amount to about 113B euros. Notice that this number is pretty close to the bank recapitalization that has been announced during tonight's summit. They have given european banks 6 months more to recharge 106B euros, which will bring the liquidity problem of the banks non-critical, buying more time for this drawn out process. EFSF has been leveraged about 2 times, from current 440B to 1T euros, which again, buys some more time, to deal with soverign bond purchases. Much of this news was already available on wednesday's trading session, except for the bank recapitalization news. So, that sums up the rally we saw in the second half of wednesday. Now that we have bullish news, what does thursday's trading hold in NY session ? The chart below gives my idea of where to buy and what prices to sell for the reminder of the week. As i post this note, ES is near the low end of my Q4 projection (1256). I am giving a 90% probability that by thursday's close, this number will be exceeded (possibly into the upper red line in chart).
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