Like Hercules battling the hydra, European leaders cut off one head only to see another appear.
Last week’s markets were largely dominated by the
continuing Greece drama, as Greece politicians haggled over a debt and
austerity deal aimed to woo the ECB and IMF into issuing more bailout
money. Markets and ETFs idled in patience as Greece politicians and
bond holders continued to postpone talks until “tomorrow.”
On a technical basis, markets declined a bit but remain in dangerous territory for a correction.
On My Wall Street Radar
chart courtesy of www.stockcharts.com
In the chart of the S&P 500 above, SPDR S&P 500 ETF (NYSEARCA:SPY) we see that the index is channeling sideways at major resistance.
RSI remains overbought and MACD is about to “roll over” to a sell signal.
However, on a longer term, we see that a “golden cross” has been formed which portends higher prices ahead.
All of this indicates that S&P 500, SPDR S&P 500 ETF (NYSEARCA:SPY) is overextended in ready for a short term correction within the context of a longer term uptrend.
The View From 35,000 Feet
All of this action occurs in response to headline news from Greece.
Last week was a roller coaster ride that took European indexes on a wild
journey, with steep declines on Friday as Vanguard MSCI Europe Index
(NYSEARCA:VGK) declined 2% on the day and iShares MSCI Germany Index
(NYSEARCA:EWG) shed 2.6% on fears over Greece.
Closer to home, S&P 500 (NYSEARCA:SPY) and the Dow Jones Industrial Average SPDR Dow Jones Industrial Trust ETF (NYSEARCA:DIA) both declined approximately 0.7% while SPDR Gold Trust (NYSEARCA:GLD) gave up 0.5% on a stronger dollar.
So as the week came to an end, little did we know that as soon as
Greece did finally strike a deal, the EU immediately struck it down,
branding it as “insufficient” for any bailout money.
One would think that such a shut down by the EU would have sparked a
global market panic on Friday, however major US markets and ETFs
responded with only a slight drop in price. Perhaps markets will react
come Monday Greece must have a deal finalized and approved deal for the
EU or face default and exit from the Eurozone.
Last week’s news at home was a mixed bag as well, as the initial
jobless claims figures improved overall yet consumer sentiment
decreased; both indicators reflect the fact that our economic growth is
improving, albeit slowly. One also wonders if our economy can handle a
Eurozone shock; after Dr. Ben’s testimonies to Congress last week, I
truly wonder if he has enough water to put out a European fire in
What to watch this week obviously starts with Greece, as Monday and
Tuesday will (or should be) do or die for the small country and the
Eurozone. If Greece adopts a deal that is yet again deemed insufficient
by the European Union, he country will likely run out of money sometime
in March, while a solution could temporarily dampen the flames. If the
apparent forthcoming solution is yet again unsatisfactory, markets will
likely go from Greek heartburn to chest pains and then tomorrow’s
global heart attack. Next week is also a monster week for Economic
Reports and indicators, as the Philly Fed, Jobless claims, home builders
index, industrial production, FOMC statements, retail sales, Empire
State, Leading Indicators, among others will provide a blizzard of data to digest and which we hope will shed more light on our ongoing economic recovery.
Bottom line: If Europe can slay its hydra, the world can
move towards recovery, but if the hydra grows another head, either in
Greece or perhaps Portugal or Italy, the Herculean battle of recent days
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02-12-2012 10:57 AM