I have taken profits on my long S&P 500 trade, for a profit of around 3.25 risk units. I was hoping to hold this trade for a long rally in equities, but I am very concerned about the legal problems in the US mortgage market. I can’t see how bad the story could get and that makes me nervous. The news about dodgy foreclosure practices has been rumbling on for a month or so and the market hasn’t focussed on it, but now there is another scandal brewing involving proper malpractice in the sale of mortgage bonds. The whole thing has the feel of a story that the market is starting to focus on, with a news headline on Bloomberg, a mention in the US (but not the global) overview in the FT and a fairly negative piece on Marketplace yesterday evening.

US bank shares fell yesterday, but this morning the S&P futures are up (they were when I exited, from the bus — but they are flattish in the chart below), giving me a good chance to exit. I remain short USD and long gold, so I am still in the “QE trade”.