The E-Mini S&P 500 was propelled to new highs last week on hopes that Greece had a staff level agreement with the troika for a new, strong and credible program! Friday, additional austerity measures were proposed halting the progression of the accord and bailout. The CBOE Volatility index (VIX) increased 11.6 %, showing the fear and anxiety in the marketplace. The US Thomson Reuters/University of Michigan index of consumer sentiment dropped to 72.5 early February from 75 in January. While the unemployment rate dropped to 8.3 % and employers added 243,000 workers in January, the payroll is still keeping household budgets tight.
The average investor may have money accumulated in cash more than in risk assets at this time. Billionaire Warren Buffett recently declared bonds were the "most dangerous of assets". The US trade deficit increased to $48.8 billion in December. US exports increased last year by 14.5% to $2.1 trillion, but imports increased 13.8% to $2.7 trillion. US exports to China increased 13.1% to $103.9 billion, but imports from China increased 9.4% to $399.3 billion. The deficit with China increased to $295.5 billion leaving US officials to contemplate the trade balance with the undervalued Yuan.
The Senate last year tried to pass legislation to press China to increase the value of their Yuan, but it was voted down. The cheaper currency makes goods and services more appealing in the global marketplace. Next week a meeting is scheduled between US President Barack Obama and China's Vice President Xi Jinping to discuss trade practices. Federal Chairman Ben Bernanke has issued a call to restore US housing markets citing that the depressed housing prices and sales are impeding the US recovery. It is believed that out of four mortgages, that one home has depreciated below the mortgage owed. Recovery takes time in the best of countries.
Thurday, Greek Finance Minister Evangelos Venizelos announced that Greece had a staff level agreement with the troika for a new, strong and credible program. He also said that an accord had been reached with the private creditors on the private bondholder losses. George Karatzaferis, party leader said that he would not support the austerity measures necessary for the bailout rescue. Further, Chairman Jean-Claude Juncker stated that $325 million euros of spending cuts were necessary in addition to the reforms already proposed. The EU officials said that the full package of both conditions and funds must be agreed upon by February 15th in order to go through the legal channels and obtain parliamentary approval to acquire the bailout money.
The bond redemption of $14.5 billion euros is for March 20th and in order not to default, the money must be in place. Greece could face bankruptcy if the deal is not in place. Protests ensue as citizens of Greece display their anti-austerity views. A default would cease payroll and pension disbursements, shut down businesses, schools and government. Globally, it would wreak havoc on the economic community perhaps creating more of a domino effect.
The E-Mini S&P 500 may have a temporary pause or this may be the beginning of a healthy retracement.
On the stock side: JP Morgan Chase and Co. (JPM) was down 0.66 % to $37.61. Citigroup Inc. (C) was down 1.87 % to $33.03. Bank of America (BAC) was down 1.10 % to $8.09. Alcoa Inc. (AA) was down 3.10 % to $10.31. Boeing Co. (BA) was down 1.25 % to $74.95. Caterpillar Inc. (CAT) was down 0.96 % to $111.75. General Electric Co. (GE) was down 1.25 % to $18.89. Halliburton Co. (HAL) was down 1.93 % to $36.06. Hewlett Packard Co. (HPQ) was down 1.37 % to $28.71. SPDR Select Sector Fund - Financial (XLF) was down 1.02 % to $14.56.
Today, we have no major US economic reports to look forward to.
E-Mini S&P 500 Chart
click to enlarge
Monday, what to expect: We maintain a bullish bias unless the E-Mini S&P 500 penetrates $1306.50. Today, we anticipate an inside to lower day. Friday's range was $1348.25 - $1333.75. The market settled at $1340.50. Our comfort zone or point of control for this market is $1339.00. Our anticipated range for Monday's is $1345.50 - $1329.50.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
