Fast moving developments in the “Greek Tragedy” pressure central
banks and governments to prevent a Greek default and a potential tidal
wave of financial calamity across Europe and the rest of the world.
On My Wall Street Radar
Last week, markets staged an impressive bear market rally but were
repeatedly stopped at significant technical resistance levels. Much of
the cheer came from the central banks’ global liquidity intervention on
Thursday, but that was perhaps particularly chilling in that it came on
September 15th, the 3rd anniversary of the collapse of Lehman Brothers
which touched off the financial crisis that we still live with today.
chart courtesy of StockCharts.com
On the chart above you can see how the
rally stopped at significant resistance and that the 50 Day Moving
Average is just above which also represents significant resistance. The
“death cross” remains visible and the index is still below its 200 Day
Moving Average which is widely viewed as the boundary between bull and
Furthermore, using point and figure charting not depicted here, the
index broke through the bullish support line and is now in a bear market
trend, as well. These lines in point and figure methodology tend to
act as very hard walls less subject to whipsaws and reversals than the
200 day moving average, and so it will be very difficult to call this a
bull market for quite sometime.
The Economic View from 35,000 Feet
Last week’s economic news continued to be glum and further confirmation of a slowing economy.
As reported in our nightly emails during the week, small business
confidence dropped for the sixth month in a row, retail sales for August
showed 0% growth, weekly new unemployment claims climbed to 428,000, up
from the previous week and missing expectations, and the Philadelphia
Fed and Empire State Index reports both declined from previous readings
and more than expected.
The Census issued a shocking report indicating that one in six
Americans lives in poverty, an all time record at 46 million, and that
medium income today is below levels last seen in 1999, and so truly we
have had a “lost decade.”
But the real spotlight was on Greece and the tensions for a possible “Lehman” event resulting from a Greek default.
Treasury Secretary Geithner made two trips to Europe in a week and
there were conference calls by the French President and German
Chancellor and high level meetings to persuade the world that “Greece is
The Europeans rejected Geithner’s proposal to leverage their bailout
program and on Saturday Greek Prime Minister unexpectedly cancelled his
next week’s visit to the United States to return to Greece to manage the
crisis in what was described as a “particularly crucial” week.. This
is interesting because his scheduled U.S. meetings included talks with
IMF head Christine Lagarde, U.S. Treasury Secretary Geithner and a
speech at the U.N. On Sunday, the Prime Minister chaired a special
meeting of his cabinet to deal with demands from the European “troika”
to qualify for the next tranche of bailout money due in October.
European financial leaders postponed a decision on releasing the next
tranche of bailout money for Greece, and the bond and credit default
swaps markets aren’t buying the “Greece is good” mantra, either, as
rates and insurance costs remained at highly elevated levels.
It was also a bad week for European banks as UBS was apparently hit
for $2 Billion and the ratings agencies are on the prowl to downgrade
banks with too much Greek exposure.
Finally, the “Congressional super committee” leaders held interviews
outlining their shared hopes for a compromise on the deficit ceiling
debate that has ten weeks to run before mandatory cuts are imposed.
What It All Means for Stock Market and ETF Investors
What it all means is that most likely the Greek drama is far from over.
In fact, it’s probably worse than previously imagined if the central
banks saw the need to intervene as forcefully as they did on Thursday,
the next bailout tranche was delayed and Papandreou unexpectedly headed
It means we are in a bear market and will see bear market
rallies, and I agree with Christine Lagarde, head of the International
Monetary Fund who said last week that a sustainable recovery was
possible but that the path was narrowing.
Wall Street Sector Selector remains defensively positioned, expecting lower prices and more volatility ahead.
This Week’s Business and Financial News and Economic Reports
The big event for the week will be the FOMC announcement on Wednesday
in which markets widely expect Dr. Bernanke to unveil some new form of
quantitative easing, most likely “Operation Twist,” in which the Fed
will rollover its short term assets for longer term maturities.
Whatever comes from this meeting will have significant impact on the global markets.
Lesser tidbits are monthly reports from the housing industry scheduled to arrive on Monday, Tuesday and Wednesday.
Disclaimer: Wall Street Sector Selector trades a wide variety of Exchange Traded Funds (ETFs) and positions can change at any time.
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09-18-2011 7:22 PM