Monday Morning Musings

The relief rallies we are seeing with each new twist in the eurozone saga seem to be getting shorter and shorter.  I made this remark last week when the market rallied on the Spanish bank bailout requests but the early rally completely faded by the end of the day.

So far this latest reaction to the Greek elections has been even shorter.  On Sunday when the news came out I saw that the Dow futures opened up around +150.  When I checked after the US Open the futures had cut those gains in half.  But what really surprised me was when our new puppy began barking at 4:30am this morning and I woke to see the futures had actually turned from +50 last night to -50 this morning.  Talk about fading euphoria.

The positive development out of the Greek elections take a potential negative scenario off the table, but it doesn't do much in the way of proactive solutions to the debt issues.  So the market quickly turns its focus of attention back to Spain, where yields on its 10-year debt spike to 7.16% and its stock market falls -2.0%.  If the market is this worried about Spain, what happens when it turns its attention to Italy (and heaven forbid France)? 

The can they're trying to kick seems to be getting bigger and heavier each time.  Investors will be looking for comments out of the G20 meeting today, but I expect little more than an increase in the size of the IMF bailout funds.

That said, we are seeing some positive action among individual stocks, especially in the tech sector.  AAPL has broken back above its 50-day average, and may be pulling the Nasdaq higher.  Facebook (FB) is also seeing a nice pop back above the $30 level. 

The dollar is up again vs. the euro, which is weighing on commodities.  Oil prices are lower near $83.05 and gold prices are weaker to $1622.  Silver and copper prices are lower as well.

The 10-year yield is a bit weaker at 1.57%; and the VIX is plunging from last week's close, down -6.6% back below the $20 level to 19.70.  I have said I think the VIX will trade between 20-25 in the near-term, so I think we could be getting close to another trade to the upside in the VIX.

Trading comment: I am glad the worst case scenario for Greece has been taken off the table.  I think that staved off a lot of potential downgrades from the ratings agency.  But Spain isn't going away.  This week we have the FOMC meeting, with many probably looking for some comments about further QE policies.  I think that could be setting the market up for some disappointment if the Fed doesn't feel the same sense of urgency to announce any big new initiatives.  I also want to see how the S&P 500 handles its upcoming test of the overhead 50-day average which is just about coming into play today.  So for now, I'll retain our conservative posture.

KAM Advisors has long positions in AAPL, FB