The US Market Wants To Continue Due South

The US Market Wants To Continue Due South


 Monday, US stocks turned due South marking the worst day so far this year.

Participants exited stocks in China, EU and the US retreating to the safety of US T’s and German B’s. The VIX (fear factor) spiked.

A series of events at the weekend put Greece near default on its debts.

Greece’s Prime Minister, Alexis Tsipras, said his government would hold a referendum on budget proposals made by the country’s lenders. European officials refused to extend the bailout program, it lapses Tuesday.

The real worry is not Greece, a country with an economy about the size of Missouri’s. The fear is not about Greece, it is about what occurs next.

The Standard & Poor’s 500 fell 43.85 pts, or 2.1%, to 2,057.64. The DJIA lost 350.33 points, or 2%, to 17,596.35, and the NAS 100 fell 122.04 pts, or 2.4%, to 4,958.47.

Those losses erased the gains for the DJIA  and S&P 500 on the year..

In Europe, Germany’s DAX lost 3.6% while France’s CAC-40 lost 3.7%. The FTSE 100 index of leading British shares fell 2%. Greece’s stock market was closed as are the banks. Investors bought German and British government bonds, which are seen as safe havens, and sold bonds issued by Greece’s government, sending those yields sharply higher.

The market does not know what the fallout is going to be, the US market feels that it is relatively contained at this point.

Over the weekend, the European Central Bank (ECB) refused to extend its emergency support for Greece’s banking system. That prompted the Greek government to close banks and announce limits on withdrawals. Pictures of long lines at bank machines in Athens appeared on television screens around the world.

The last time Greek money issues roiled the US markets, there were lots of problems. In Y 2012, Spain had entered a recession, and the worry was that it was too big of a country to rescue. No US job growth added to the anxiety. That Spring, the S&P 500 index lost 9.9% in 2 months. Participants sought safety in US Treasury bonds, driving long-term interest to record lows.

The fear was that a financial crisis would spread from Greece to the rest of Europe because the economies were and still are very fragile.

If Greece defaults and switches back to the Drachma it will rattle global financial markets. But the markets are not unlikely to see anything like the full-blown crisis of Y 2008.

The European Central Bank (ECB) is ready  prevent a panic.

The ECB has already committed to buying EUR 60-B a month in corporate and government bonds to push down interest rates and help the European economy. It could buy even more, and flood financial markets with cash, to calm jittery European investors.

The real concern is this coming earnings season, projections, the strong USD, and lofty valuations of the S&P 500 leadership.  A pullback of 9-10% will be healthy, a correction of 20% will be healthier, as much of the leveraged market will be erased, and who knows a 38 t0 55% Fibo retracement may happen, then real money will be made and made again.

Looking for a ‘Dead Cat’ bounce and then an extension of this move South on all US major market indexes.

On a continued flight to quality and safe haven seeking participants seeing a continued market sell off in stocks, they may look to precious metals as a place to put the equities exit cash.

HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bearish (-0.25) Bearish (-0.27) Bearish (-0.46) Neutral (-0.01)
HeffX-LTN Analysis for DIA:  Overall Short Intermediate Long
Bearish (-0.27) Neutral (-0.04) Neutral (-0.21) Very Bearish (-0.56)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Neutral (-0.12) Very Bearish (-0.55) Neutral (-0.10) Bullish (0.29)


Gold finished up 5.80 to 1,179, and Silver down 0.07 to 15.66. COMEX Copper Unch at 2.64 lb.

WTI Crude Oil fell 1.30 to close at 58.33 on the New York Merc. Brent Crude Oil fell 1.25 to close at 62.01 on ICE in London.

Stay tuned…

Paul Ebeling


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