We knew the markets were going down – we just weren't sure which of the many, MANY possible reasons would rise up and finally cause people to re-price risk. Today it's Italy, which essentially has been unable to form a Government for the past 3 months as President Mattarella has refused to work woth a Euro-skeptic Finance Minister put forth by newly-elected Populist party leaders Salvini and Di Maio.
At issue is Italy's potential to default on $250Bn worth of bonds and a possible exit from the Euro-Zone, following the UK's Brexit lead and possibly unraveling the whole Union at this point. If this is a surprise to you – then you don't read our PSW Reports every day as my first bullet-point on July 6th of 2016 was "Italy is spinning out of control and taking the EU down with it." – so we saw this coming from a couple of miles away – aside from our many recent posts on the topic.
At this point, it's very possible that the 5-Star Coalition that controls the biggest voting block in Government will seek to impeach Mattarella and, if that happens, we go from unstable right to the point where the hero is usually sweating over the nuclear bomb with a pair of pliers debating which wire to cut.
Italy really isn't the important thing, anything could have sent investors flying out of equities and back into bonds (up 1% this morning) and CASH!!! rather than paying 100x earnings for the next "hot" stock. The market is overpriced and it needs to cool off – any catalyst is a good excuse to do so.
On Thursday we called for a short of the Nasdaq (/NQ) Futures at 6,950 and we hit 6,900 this morning for a gain of $1,000 per contract and the S&P (/ES) Futures at 2,728 blew through our 2,712 target to test the 2,700 line for a $1,400 per contract gain so "wheeeeeee!" indeed and a great way to start our week. Also, Wednesday's webinar play to short oil using the SCO June $14/17 bull call spread at $1.45 is on track for the full $3 as…