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Like It Or Not, Greece Is Back image

Well, well, well... I will have to admit that I didn't see this coming. Having dealt with no fewer than three prior Greek crises since 2010 (the results of which were always the same) one could hardly be criticized for expecting to see the exact same thing happen this time around. First there is disagreement, then tempers flare and threats are made, folks storm out of meetings, doors are slammed, insults are thrown, and then at the 11th hour, a deal is always reached. That is just how the game between the Eurozone and Greece is played.

Frankly, until Friday afternoon, nobody really expected this go round to be any different. After all, there was an 11th hour meeting scheduled for Saturday and both sides called it a make or break event. And with officials from both the EU and Greece hinting that there were concessions to be made, there was no reason to expect that a last-minute deal wouldn't get done.

This is why until Monday, the stock market had only surrendered a percent or so from its most recent all-time high. This is why there was no angst among market participants. And this is why few investors have gotten all hot and bothered about yet another crisis in Greece. In short, the base level assumption has been that this crisis would play out just like all the others.

And to be sure, this crisis DID appear to be going according to plan... Until Alexis Tsipras decided to play a game of chicken, that is.

Just when it appeared that a deal was within reach, Syriza's left-wing, anti-austerity leader threw a monkey wrench into the works. Apparently Mr. Tsipras believes that he can negotiate with his country's creditors via the media. Apparently the Syriza PM thinks he can get a better deal if shows the world that his entire country is behind him. Instead of taking the deal that was on the table, it appears Tsipras has decided that a course of brinkmanship is preferred.

In case you're wondering, the July 5th vote in Greece isn't about whether or not citizens want to stay in the Eurozone (and hey, come to think of it; hasn't that vote already occurred?). No, this simple "yes" or "no" vote is about whether Greeks want accept the terms of the bailout. Wait, what?

That's right, the Greek PM believes that a resounding "no" vote will force creditors to rethink their position. However, there are two sides to this view as well.

From the European point of view, a "no" vote means an end to the country's participation in the Eurozone. Enough is enough seems to be the stance in places like Germany and France. French President Francois Hollande said Monday, "It's a question of knowing whether the Greeks want to remain in the Eurozone - which is where they belong, in my opinion - or if they will take the risk of exiting."

Markets Suddenly Seem to Care

For the stock markets around the globe, this new wrinkle in the crisis has meant a great deal. European bourses fell more than 3% on Monday. And the S&P 500 had its worst day of 2015, falling more than 2% for the first time this year.

From a chart perspective, things got rather ugly in a hurry yesterday.

S&P 500 Index - Daily

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As the chart above illustrates, the S&P broke through its 150-day moving average on a meaningful basis for the first time in eight and one-half months. Next, there is no uptrend to be found and finally, there is now a lower-low on the chart. All of which portend bad things to come according to our furry friends in the bear camp.

While the jury may still be out on that score a few things are indeed clear at this stage. First, uncertainty is back. Second, contagion risk is back (for example, Puerto Rico made news by talking default yesterday). And of course, Greece is back - whether we like it or not.

The latest reports this morning suggest the Greek government may still be reconsidering an offer from the European Commission on a last-minute bailout extension that would avert a default. Greek PM Tsipras indicated on Greek state TV last night that his government was still open to an agreement with creditors, "even at the 11th hour" as he noted that the goal of the referendum was to continue talks with creditors. Apparently pressure caused by the closure of the Greek banks as well as the expiration of the Greek bailout program on Tuesday has caused some members of the government to urge Tsipras to accept Juncker’s latest offer. Citing sources, Ekathimerini is reporting that the Tsipras's office has already informed the EU that it is examining the proposal. As a result, stock futures in the U.S. are more hopeful before the open.

This Morning's Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
    Japan: +0.63%
    Hong Kong: +1.09%
    Shanghai: +5.53%
    London: -0.35%
    Germany: +0.17%
    France: +0.02%
    Italy: +1.01%
    Spain: +0.62%

Crude Oil Futures: +$0.26 to $58.59

Gold: -$8.30 at $1170.70

Dollar: higher against the yen, euro and pound

10-Year Bond Yield: Currently trading at 2.360%

Stock Indices in U.S. (relative to fair value):
    S&P 500: +14.2
    Dow Jones Industrial Average: +112
    NASDAQ Composite: +29.80

Thought For The Day:

"The excessive increase of anything causes a reaction in the opposite direction." - Plato

Current Market Drivers

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

      1. The State of the Greek Crisis
      2. The State of Fed/ECB/PBoC Policy
      3. The State of the U.S. Economy
      4. The State of Interest Rates

The State of the Trend

We believe it is important to analyze the market using multiple time-frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:

Short-Term Trend: Negative
(Chart below is S&P 500 daily over past 1 month)

Intermediate-Term Trend: Moderately Positive
(Chart below is S&P 500 daily over past 6 months)

Long-Term Trend: Positive
(Chart below is S&P 500 daily over past 2 years)

Key Technical Areas:

Traders as well as computerized algorithms are generally keenly aware of the important technical levels on the charts from a short-term basis. Below are the levels we deem important to watch today:

  • Key Near-Term Support Zone(s) for S&P 500: 2040
  • Key Near-Term Resistance Zone(s): 2100

The State of the Tape

Momentum indicators are designed to tell us about the technical health of a trend - I.E. if there is any "oomph" behind the move. Below are a handful of our favorite indicators relating to the market's "mo"...

  • Trend and Breadth Confirmation Indicator (Short-Term): Negative
  • Price Thrust Indicator: Neutral
  • Volume Thrust Indicator: Negative
  • Breadth Thrust Indicator: Neutral
  • Intermediate-Term Bull/Bear Volume Relationship: Moderately Negative
  • Technical Health of 100+ Industry Groups: Moderately Positive

The Early Warning Indicators

Markets travel in cycles. Thus we must constantly be on the lookout for changes in the direction of the trend. Looking at market sentiment and the overbought/sold conditions can provide "early warning signs" that a trend change may be near.

  • S&P 500 Overbought/Oversold Conditions:
          - Short-Term: Oversold
          - Intermediate-Term: Moderately Oversold
  • Market Sentiment: Our primary sentiment model is Neutral .

The State of the Market Environment

One of the keys to long-term success in the stock market is stay in tune with the market's "big picture" environment in terms of risk versus reward.

  • Weekly Market Environment Model Reading: Neutral

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder and Chief Investment Strategist
Heritage Capital Research


Indicator Explanations

Trend and Breadth Confirmation Indicator (Short-Term) Explained: History shows the most reliable market moves tend to occur when the breadth indices are in gear with the major market averages. When the breadth measures diverge, investors should take note that a trend reversal may be at hand. This indicator incorporates an All-Cap Dollar Weighted Equity Series and A/D Line. From 1998, when the A/D line is above its 5-day smoothing and the All-Cap Equal Weighted Equity Series is above its 25-day smoothing, the equity index has gained at a rate of +32.5% per year. When one of the indicators is above its smoothing, the equity index has gained at a rate of +13.3% per year. And when both are below, the equity index has lost +23.6% per year.

Price Thrust Indicator Explained: This indicator measures the 3-day rate of change of the Value Line Composite relative to the standard deviation of the 30-day average. When the Value Line's 3-day rate of change have moved above 0.5 standard deviation of the 30-day average ROC, a "thrust" occurs and since 2000, the Value Line Composite has gained ground at a rate of +20.6% per year. When the indicator is below 0.5 standard deviation of the 30-day, the Value Line has lost ground at a rate of -10.0% per year. And when neutral, the Value Line has gained at a rate of +5.9% per year.

Volume Thrust Indicator Explained: This indicator uses NASDAQ volume data to indicate bullish and bearish conditions for the NASDAQ Composite Index. The indicator plots the ratio of the 10-day total of NASDAQ daily advancing volume (i.e., the total volume traded in stocks which rose in price each day) to the 10-day total of daily declining volume (volume traded in stocks which fell each day). This ratio indicates when advancing stocks are attracting the majority of the volume (readings above 1.0) and when declining stocks are seeing the heaviest trading (readings below 1.0). This indicator thus supports the case that a rising market supported by heavier volume in the advancing issues tends to be the most bullish condition, while a declining market with downside volume dominating confirms bearish conditions. When in a positive mode, the NASDAQ Composite has gained at a rate of +38.3% per year, When neutral, the NASDAQ has gained at a rate of +13.3% per year. And when negative, the NASDAQ has lost at a rate of -8.5% per year.

Breadth Thrust Indicator Explained: This indicator uses the number of NASDAQ-listed stocks advancing and declining to indicate bullish or bearish breadth conditions for the NASDAQ Composite. The indicator plots the ratio of the 10-day total of the number of stocks rising on the NASDAQ each day to the 10-day total of the number of stocks declining each day. Using 10-day totals smooths the random daily fluctuations and gives indications on an intermediate-term basis. As expected, the NASDAQ Composite performs much better when the 10-day A/D ratio is high (strong breadth) and worse when the indicator is in its lower mode (weak breadth). The most bullish conditions for the NASDAQ when the 10-day A/D indicator is not only high, but has recently posted an extreme high reading and thus indicated a thrust of upside momentum. Bearish conditions are confirmed when the indicator is low and has recently signaled a downside breadth thrust. In positive mode, the NASDAQ has gained at a rate of +22.1% per year since 1981. In a neutral mode, the NASDAQ has gained at a rate of +14.5% per year. And when in a negative mode, the NASDAQ has lost at a rate of -6.4% per year.

Bull/Bear Volume Relationship Explained: This indicator plots both "supply" and "demand" volume lines. When the Demand Volume line is above the Supply Volume line, the indicator is bullish. From 1981, the stock market has gained at an average annual rate of +11.7% per year when in a bullish mode. When the Demand Volume line is below the Supply Volume line, the indicator is bearish. When the indicator has been bearish, the market has lost ground at a rate of -6.1% per year.

Technical Health of 100 Industry Groups Explained: Designed to provide a reading on the technical health of the overall market, this indicator takes the technical temperature of more than 100 industry sectors each week. Looking back to early 1980, when the model is rated as "positive," the S&P has averaged returns in excess of 23% per year. When the model carries a "neutral" reading, the S&P has returned over 11% per year. But when the model is rated "negative," stocks fall by more than -13% a year on average.

Weekly State of the Market Model Reading Explained:Different market environments require different investing strategies. To help us identify the current environment, we look to our longer-term State of the Market Model. This model is designed to tell us when risk factors are high, low, or uncertain. In short, this longer-term oriented, weekly model tells us whether the odds favor the bulls, bears, or neither team.


Disclosures

The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

David D. Moenning, an advisor representative of CONCERT Wealth Management Inc. (CONCERT), is founder of Heritage Capital Advisors LLC, a legal business entity doing business as Heritage Capital Research (Heritage). Advisory services are offered through CONCERT Wealth Management, Inc., a registered investment advisor. For a complete description of investment risks, fees and services review the CONCERT firm brochure (ADV Part 2) which is available from your Investment Representative or by contacting Heritage or CONCERT.

Mr. Moenning is also the owner of Heritage Capital Management (HCM) a state-registered investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Neither HCM, Heritage, or CONCERT is registered as a broker-dealer.

Employees and affiliates of Heritage and HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or Heritage/HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.