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The "Greeks Are Playing Nice" Rally Is Over For The S&P 500

|Includes: SPDR S&P 500 Trust ETF (SPY)

The bounce in global markets over the last two trading days has been a welcome respite from the selling and negative headlines that were pervasive in the markets last week and in the press last weekend. The bounce was attributed to oil rally and the Greek's efforts to work with the EU to find a solution to their debt issues.

Well, I hope you enjoyed the bounce because I believe it's over. Oil may have bottomed (I think this is likely), but a sustainable rally in oil is months away at best. The supply / demand environment is just too negative until later in the year. We will continue to oversupply and build up crude inventories. Q4 is when there will be balance in the market and, while oil may bottom before then, don't expect a meaningful rally anytime soon.

Meanwhile, any positive feelings regarding Greece and its debt overhang are misplaced. The Greek Minister of Finance has played nice with the French and Italians; two countries with their own debt issues. Now it's time to speak with the northern European countries. And, they won't be nearly as easy to get along with.

Don't expect Germany (nor Denmark and Sweden as well) to agree to any of the ploys being bandied about by the Greeks. They will demand repayment, not extension of debt. They also will refuse to tie repayment to the future prosperity of the Greek economy.

Instead, if the Syriza government wants to keep any of its pre-election promises, it will reach an inevitable impasse with Germany. Default is in the offing and, quite possibly, a Grexit to follow.

So, enjoy the rally while you can. We have turned the corner and the market is establishing a downtrend. Expect the gains of Monday and Tuesday to be short lived and last weeks lows to be revisited and exceeded very soon.

Disclosure: The author is short THE S&P 500.