Spanish 2-year yields initially traded down yesterday before reversing to end 60 bps higher on the day. This morning 2-year yields are again down 28 bps and 10-year yields are down 4 bps to 6.76% (

The Italian recession continues with Q2 GDP contracting 0.7% after contracting 0.8% in Q1. This is the fourth quarterly contraction in a row and is likely to further worry investors about Italy’s debt, which amounts to 123% of GDP.

Yesterday Boston Federal Reserve president Eric Rosengren called for an open-ended bond buying program. He said “It’s going to need to be fairly large to have an impact. I’d want to tie it to economic outcomes rather than a calendar date.” He also stated “We have an economy growing more slowly than we expected. If we weren’t facing some of the problems with fiscal policy abroad and with Europe, we probably would have a self-sustaining recovery now” (Boston Herald). Rosengren is not a voting FOMC member but his comments are nonetheless likely to drive the S&P 500 higher.

Looking at the market’s technical’s, the S&P 500 ($SPY) is at the top end of a daily channel, which could provide resistance to a rally. Traders will be watching the 140.00 level. A break through here could mean a rally to the year’s highs, while failure would likely mean a retest of the channel low (136.50). With the VIX below 16.00 this is a good time to consider buying puts to hedge a potential market decline.

NYSE volume has decreased the past four days in a row. We expect low volumes to continue as the market enters the “summer doldrums.” Traders should be wary of this market, which can be very choppy and headline driven. We recommend using conservative options strategies such as covered calls in these environments to reduce downside risk and create cash flow.