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Tossing the Greek Salad: What Austerity Means for the Markets

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Putting one foot in front of the other.

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"A riot is an ungly thing... undt, I tink, that it is chust about time ve had vun!" --Inspector Kemp, Young Frankenstein

The people have spoken -- and protested and rioted and looted -- but despite all that, the Greek government sidestepped the dubious distinction of being the euro regions' first sovereign default, at least for the time being.

This morning's vote put the devil we know (contagion) behind us (for now, but don't blink) and opened the door for the devil we don't (unintended consequences, social strife, higher priced olives).

Of course, Greece being Greece, most folks aren't much concerned with civil unrest in this once sleepy, peaceful, and still beautiful country. The risk -- at least through a socioeconomic lens -- is the ever-shifting psychology, for we know that social mood and risk appetites shape financial markets.

That may or may not matter today -- we'll get to that in a moment -- but let's project how this vote would be received in Portugal, Spain, Ireland... and eventually, inevitably, the United States.

I know, I know... the destination we arrive at pales in comparison to the path we take to get there, and therein lies our task at hand -- to make hay while the sun shines while keeping an eye on a comfy spot in the shade.

To that end, and given 1) we've rallied 3% into this vote and 2) we're now approaching dual resistance, which includes S&P 1300 and S&P 1315 (the downtrend; lower highs), it's quite possible that investors will sell this news.


Click to enlarge

Our daily guides include:

1) The Dollar: -35 bips, watch this).

2) The Financials: Goldman (GS) has acted like death warmed over, this stock must rally today or we've got real problems, Bank America (BAC) with stock specific news there, Morgan Stanley (MS), the top-tech underwriter, and Zynga is valued at $20 billion? Somebody introduce them to Minyanland!

3) The bang-for-the-buck quarter-end plays, including high-beta fliers like Google (GOOG), Apple (AAPL), Netflix (NFLX), and yes, LinkedIn (LNKD), as a sentiment and "agenda" tell.

I offered last week that a quarter-end rally could end today, as settlements and marks and games people play typically precede the day(s) of quarter-end for a multitude of reasons. That and $2.25 will get you on the subway -- and I would feel entirely more comfy with that notion if we gapped higher, as the pre-market futures initially indicated -- but it's all good.

We'll follow our roadmap, define our risk, maintain our perspective, and in a show of solidarity, order Greek salads for lunch!

Good luck today.

R.P.

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