Well, well, well... I will have to admit that I didn't see this coming. Having dealt with no fewer than three prior Greek crises since 2010 (the results of which were always the same) one could hardly be criticized for expecting to see the exact same thing happen this time around. First there is disagreement, then tempers flare and threats are made, folks storm out of meetings, doors are slammed, insults are thrown, and then at the 11th hour, a deal is always reached. That is just how the game between the eurozone and Greece is played.
Frankly, until Friday afternoon, nobody really expected this go round to be any different. After all, there was an 11th hour meeting scheduled for Saturday and both sides called it a make or break event. And with officials from both the EU and Greece hinting that there were concessions to be made, there was no reason to expect that a last-minute deal wouldn't get done.
This is why until Monday, the stock market had only surrendered a percent or so from its most recent all-time high. This is why there was no angst among market participants. And this is why few investors have gotten all hot and bothered about yet another crisis in Greece. In short, the base level assumption has been that this crisis would play out just like all the others.
And to be sure, this crisis DID appear to be going according to plan... Until Alexis Tsipras decided to play a game of chicken, that is.
Just when it appeared that a deal was within reach, Syriza's left-wing, anti-austerity leader threw a monkey wrench into the works. Apparently Mr. Tsipras believes that he can negotiate with his country's creditors via the media. Apparently the Syriza PM thinks he can get a better deal if shows the world that his entire country is behind him. Instead of taking the deal that was on the table, it appears Tsipras has decided that a course of brinkmanship is preferred.
In case you're wondering, the July 5th vote in Greece isn't about whether or not citizens want to stay in the eurozone (and hey, come to think of it; hasn't that vote already occurred?). No, this simple "yes" or "no" vote is about whether Greeks want accept the terms of the bailout. Wait, what?
That's right, the Greek PM believes that a resounding "no" vote will force creditors to rethink their position. However, there are two sides to this view as well.
From the European point of view, a "no" vote means an end to the country's participation in the eurozone. Enough is enough seems to be the stance in places like Germany and France. French President Francois Hollande said Monday, "It's a question of knowing whether the Greeks want to remain in the eurozone - which is where they belong, in my opinion - or if they will take the risk of exiting."
Markets Suddenly Seem to Care
For the stock markets around the globe, this new wrinkle in the crisis has meant a great deal. European bourses fell more than 3% on Monday. And the S&P 500 had its worst day of 2015, falling more than 2% for the first time this year.
From a chart perspective, things got rather ugly in a hurry yesterday.
S&P 500 Index - Daily
As the chart above illustrates, the S&P broke through its 150-day moving average on a meaningful basis for the first time in eight and one-half months. Next, there is no uptrend to be found and finally, there is now a lower-low on the chart. All of which portend bad things to come according to our furry friends in the bear camp.
While the jury may still be out on that score a few things are indeed clear at this stage. First, uncertainty is back. Second, contagion risk is back (for example, Puerto Rico made news by talking default yesterday). And of course, Greece is back - whether we like it or not.
The latest reports this morning suggest the Greek government may still be reconsidering an offer from the European Commission on a last-minute bailout extension that would avert a default. Greek PM Tsipras indicated on Greek state TV last night that his government was still open to an agreement with creditors, "even at the 11th hour" as he noted that the goal of the referendum was to continue talks with creditors. Apparently pressure caused by the closure of the Greek banks as well as the expiration of the Greek bailout program on Tuesday has caused some members of the government to urge Tsipras to accept Juncker's latest offer. Citing sources, Ekathimerini is reporting that the Tsipras's office has already informed the EU that it is examining the proposal. As a result, stock futures in the U.S. are more hopeful before the open.
This Morning's Pre-Game Indicators
Here are the Pre-Market indicators we review each morning before the opening bell...
Major Foreign Markets:
Hong Kong: +1.09%
Crude Oil Futures: +$0.26 to $58.59
Gold: -$8.30 at $1170.70
Dollar: higher against the yen, euro and pound
10-Year Bond Yield: Currently trading at 2.360%
Stock Indices in U.S. (relative to fair value):
S&P 500: +14.2
Dow Jones Industrial Average: +112
NASDAQ Composite: +29.80
Thought For The Day:
"The excessive increase of anything causes a reaction in the opposite direction." - Plato
Current Market Drivers
We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
1. The State of the Greek Crisis
2. The State of Fed/ECB/PBoC Policy
3. The State of the U.S. Economy
4. The State of Interest Rates
The State of the Trend
We believe it is important to analyze the market using multiple time-frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:
Short-Term Trend: Negative
(Chart below is S&P 500 daily over past 1 month)
Intermediate-Term Trend: Moderately Positive
(Chart below is S&P 500 daily over past 6 months)
Long-Term Trend: Positive
(Chart below is S&P 500 daily over past 2 years)
Key Technical Areas:
Traders as well as computerized algorithms are generally keenly aware of the important technical levels on the charts from a short-term basis. Below are the levels we deem important to watch today:
- Key Near-Term Support Zone(s) for S&P 500: 2040
- Key Near-Term Resistance Zone(s): 2100
The State of the Tape
Momentum indicators are designed to tell us about the technical health of a trend - I.E. if there is any "oomph" behind the move. Below are a handful of our favorite indicators relating to the market's "mo"...
- Trend and Breadth Confirmation Indicator (Short-Term): Negative
- Price Thrust Indicator: Neutral
- Volume Thrust Indicator: Negative
- Breadth Thrust Indicator: Neutral
- Intermediate-Term Bull/Bear Volume Relationship: Moderately Negative
- Technical Health of 100+ Industry Groups: Moderately Positive
The Early Warning Indicators
Markets travel in cycles. Thus we must constantly be on the lookout for changes in the direction of the trend. Looking at market sentiment and the overbought/sold conditions can provide "early warning signs" that a trend change may be near.
S&P 500 Overbought/Oversold Conditions:
- Short-Term: Oversold
- Intermediate-Term: Moderately Oversold
- Market Sentiment: Our primary sentiment model is Neutral .
The State of the Market Environment
One of the keys to long-term success in the stock market is stay in tune with the market's "big picture" environment in terms of risk versus reward.
- Weekly Market Environment Model Reading: Neutral