Stocks chop mostly sideways awaiting Greek Debt resolution

Wednesday, July 1, 2015 -

Stocks continued to hold prices steady or slightly advance from Monday’s sell-off on news that Greece leadership agreed to Eurozone proposal terms, even though Germany wants to wait for results of the Greek referendum vote on Sunday.

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Anything on Greece tends to influence trading this week. News that Prime Minister Tsipras personally agreed to the latest debt proposal from the Eurozone meetings helped stocks spike nicely in early trading. Later, when it was learned that Germany refused to budge until results of the scheduled Sunday referendum vote stocks began a steady sell off, though by the close still managed to close in positive territory.

The indexes did manage to gain a little going into the close but were well off the early highs seen when the markets opened. The Dow advanced 138 points (-0.8%) to 17,758, the Nasdaq rose 26 points (-0.5%) to 5,013 and the S&P 500 climbed 14 points (+0.7%) to 2,077. The NYSE finished at +0.5% and the small cap Russell 2000 at +0.2%.

Wall Street traders continue to hold their breath and hope for a potential deal regarding the Greed debt crisis, despite missing the payment deadline yesterday – remember, the IMF regards the missed payment as “arrears” rather than “default”.

The simple news that Tsipras personally indicated agreement to Eurozone terms helped postpone another strong sell off in equities today. But a lot depends on the Sunday vote and how Germany feels come next Monday.

On the other hand, Europeans must feel a deal will be reached based on today’s trading in the Eurozone, as the major European markets all moved sharply higher on the day. While the U.K.’s FTSE 100 Index surged up by 1.3 percent, the French CAC 40 Index and the German DAX Index soared by 1.9 percent and 2.2 percent, respectively.

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Greek Leader Tiptoes on Agreement

While Greece failed to make a 1.55 billion euro payment to the International Monetary Fund, Greek Prime Minister Alexis Tsipras sent a letter indicating he will accept most of the demands made by the country’s creditors.

The two-page letter, obtained by the Financial Times, was sent to the heads of the IMF, the European Commission, and the European Central Bank.

However, German Chancellor Angela Merkel and Eurogroup President Jeroen Dijsselbloem have both said further negotiations will have to wait until after the Greek referendum on Sunday.

Tsipras has called on Greeks to vote “no” in the referendum, which he claimed is not an up or down vote on Greece’s membership in the eurozone. The Greek Prime Minister argued that voting against the proposals offered by creditors would give the government more leverage in the negotiations.

In contrast to the spin from Tsipras we learn that European leaders, including German Chancellor Angela Merkel and French President Francois Hollande, have warned that a ‘no’ vote in the referendum would mean Greeks are rejecting Europe and opting to exit the Eurozone, dubbed the ‘Grexit’.

There’s nothing like a little bit of contrasting contention between Eurozone leaders to calm the equity markets around the world, eh?

We have no way of knowing how this Greek crisis is going to play out yet. I guess it depends on what “no” means this coming Sunday.

Broad Market Struggling at Major Support

We did see some light economic improvement in today’s data releases, as the Institute for Supply Management reported that its manufacturing index rose by slightly more than expected in June, rising from 52.8 in May to 53.5 in June.

But from a technical level, the broad market is struggling at critical major support. The NYSE fell strongly below its 50MA and 200MA and despite the advances for the last two days, the NYSE is hovering below the critical 200MA support level.

50701NYSE-CriticalSupport

Notice how the NYSE has traded this week, persistently remaining below its 200-day moving average. Some time ago we suggested that a typical A-B-C wave down would see prices not only break below the 200MA but go even lower, since C wave movements tend to be much greater than initial A waves.

The technical picture we see here is a great reflection of the uncertainty of what is going on in Greece. Should some resolution come forth in the next week or so then we might not see much more downside action. But if we hear strong talk of default and a return to the Drachma currency and a likely exit from the Eurozone for Greece then expect another strong downside decline in July.

June was a negative month. If July closes in negative territory as well by the end of the month, then equities will be facing some serious long-term pattern sell signals. We often use a 10-month Exponential Moving average for the S&P 500 to delineate between bull markets and bear markets.

50701PrimaryTrend

Even a small decline in the S&P 500 by the end of July will either put prices directly on this long-term signal or possibly create a bear market sell signal if prices drop below the 10-month EMA. This is because the 10-month EMA is still climbing while the prices for the S&P 500 are sideways to a new downside trend, making a sell signal more likely than not it we see any significant sell off in July.

Looking Ahead

News regarding Greece is likely to remain in focus on Thursday, but traders are also likely to keep a close eye on the Labor Department’s monthly jobs report. The report is being released a day earlier than usual due to the July 4th holiday.

Economists currently expect the report to show an increase of about 230,000 jobs in June following the jump of 280,000 jobs reported for May. The unemployment rate is also expected to dip to 5.4 percent.

Going into a long weekend holiday, sellers may lighten their holdings given the uncertainty going on in Greece.

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