E-Mini S&P 500: First The Bump Then The Jump

Includes: EU, XLF
by: DeWayne Reeves

The E-Mini S&P 500 seemed to hit a bump Tuesday with the Eurozone concerns regarding a potential disorderly default of Greece followed by a jump when Apple (NASDAQ:AAPL) announced record breaking earnings after the bell.

The European Union (EU) met Monday to discuss the Greek debt with private creditors to restructure the debt. Greece has $14.5 billion euros in bonds due to mature in March. There are tremendous concerns that a unorganized default may lead to contagion fears globally. The Greek debt has grown to 190% of its GDP. The potential default would mean that possibly Greece would return to its Drachma for currency and leave the EU. This could potentially bankrupt the banking system in Greece and any holders of the Greek debt instruments.

Italy would be vulnerable to the contagion effect as the monies necessary for a bailout of such a large economy seems beyond the means of the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM). The International Monetary Fund (IMF) has been through some harsh criticism as of late for not forecasting some of the possible signs of recession. The EFSF was initially set-up to manage the debt, but was downgraded along with France, then was regarded as temporary. July 2012, the permanent fund to manage the debt crisis was re-instated from 2008 as the ESM.

The Eurozone officials are trying to boost the funds to about $750 billion euros to become more effective. The future support of the IMF is tied to the effectiveness of the designated funds to shore up the debt. They are trying to get countries signed up for the fiscal compact, to effect tighter budget rules. It was thought that there may be more support of the ESM in the case of a disorderly Greek default.

On top of all of this, Standard & Poor's may downgrade Greece's ratings to "selective default" once an outcome is arrived at. The IMF wants to see a firewall around Greece to prevent the contagion from spreading. EU officials are to meet again on January 30th to detail the new fiscal treaty that was outlined December 2011.

The latest Thomson Reuters report showed 20% of the S&P 500 companies have reported earnings with 58% exceeding expectations. Apple announced earnings Tuesday after the close of $46.33 billion in revenues and profits of $13.06 billion for fourth quarter 2011. That exceeded expectations of $38.76 billion in revenue and profits of $10.07 billion. The increase may have been due to excessive sales of iPhones, iPads and Macs. The Federal Open Market Committee will announce interest-rate projections in an effort toward a new transparency policy to give the American people more clarity on the economic path of the Federal Reserve. It is expected that the interest rates may be held close to zero into 2014.

On the stock side: JP Morgan Chase and Co. (NYSE:JPM) was unchanged 0.00 % to $37.80. Citigroup Inc. (NYSE:C) was up 0.17 % to $29.97. Bank of America (NYSE:BAC) was up 0.55 % to $7.34. Alcoa Inc. (NYSE:AA) was up 0.20 % to $10.29. Boeing Co. (NYSE:BA) was down 0.20 % to $75.30. Caterpillar Inc. (NYSE:CAT) was down 0.08 % to $106.45. General Electric Co. (NYSE:GE) was down 0.53 % to $18.91. Halliburton Co. (NYSE:HAL) was up 2.60 % to $36.50. Hewlett Packard Co. (NYSE:HPQ) was down 0.56 % to $28.66. SPDR Select Sector Fund - Financial (NYSEARCA:XLF) was down 0.14 % to $14.23.

US FOMC interest rate projections at 1:30 PM CST today.

E-Mini S&P 500 Chart.

Wednesday, what to expect: We maintain a bullish bias unless the E-Mini S&P 500 penetrates $1300.50. Today, we anticipate an outside day. Tuesday's range was $1311.75 - $1301.50. The market settled at $1311.50. Our comfort zone or point of control for this market is $1308.00. Our anticipated potential range for today's trading s $1327.50 - $1297.50. This could be the cusp of a reversal.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.