David Moenning

About the Author David Moenning

David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980 and has been an independent money manager since 1987. Thus, Dave has been live on the firing line and investing for a living for more than 25 years.

Daily State Of The Markets: Traders Have Seen This Greek Drama Before

To be sure, the current situation in Europe has a familiar ring to it. Greece makes demands and threatens to leave the eurozone. Greek officials make offers. Germany says, “Nein!” Analysts then fret about what could happen to the banks of Europe should the Greeks decide to walk away. And the headline-reading algos react to every single word coming out of any/all European official’s mouths.

The bottom line is that investors have watched the negotiations between Greece and the so-called Troika (European Commission, ECB, and IMF) unfold many times since 2010. If you will recall, it was worries over Greece that caused the big corrections of 2010, 2011, and 2012. (Well, to be fair, the wrangling in Washington that resulted in the downgrading of U.S. debt also played a big role in 2011.) So, investors can’t be blamed if they start to wonder if the current mess will be a case of deja vu all over again.

S&P 500 – Weekly

So far at least, the markets have not given much credence to the Syriza government’s insistence on renegotiating the deal with its European partners. So far at least, the market has not been treated to a joyride any time one of the major players says anything. But remember, this was the way the game was played a few years back.

The point is that Wall Street traders LOVE their historical trends and play books for given scenarios. So, with the European Finance Ministers meeting today, investors should be aware of the fact that volatility could quickly come into the markets as neither side of this argument appears to be even hinting at backing down.

Here’s the Latest…

To be clear, the U.S. stock market does not appear to care much about the Greek situation at the moment. But as we all know, this can change – and quickly. Therefore, it is probably a good idea to stay on top of what is happening across the pond.

The first thing to understand is that Greece could run out of cash relatively quickly. Reports indicate that the government has enough money to stay afloat until the end of the month. But remember, February is a short month. Therefore, the issues at hand do seem to have some urgency associated with them.

As we head into today’s session, investors should also know that there will be a showdown today at the meeting of European Finance Ministers and that Greece has been ramping up the rhetoric in advance of the meeting.

It is worth noting that the Greek government got a strong endorsement from parliament for its hardline stance on the bailout. Prime Minister Tsipras told members that the government will not yield to demands over its aid program no matter how much German Finance Minister Schaeuble demands it. Tsipras said it is not negotiating the bailout because the bailout has effectively been canceled.

However, recall that German Finance Minister Schaeuble warned yesterday that Greece would be offered no other deal than the extension of its existing bailout. According to Dow Jones, Schaeuble told reporters at G20 meeting in Instanbul that rumors of a six-month extension of Greece’s bailout program were false, saying that such speculation was the stuff of fantasy.

Just Posturing?

At this stage, the U.S. stock market doesn’t appear to be terribly worried about the situation. Traders have definitely seen this movie before and they know that in the end, nobody dies – and nobody leaves the eurozone. As such, traders likely view the most recent activity as mere political posturing.

However, it is probably a good idea to keep in mind that Greece has a long history of defaulting on its debts. Therefore, there would seem to be at least the possibility that Tsipras’s government could continue to threaten to walk away right up until the clock strikes midnight.

But so far at least, markets around the globe aren’t freaking out and that is a good thing for now. Turning to This Morning…

While there is definitely no fear in the air, there does appear to be some concern about the outcome of the emergency meeting of Europe’s finance ministers to be held today. With both sides ramping up the rhetoric yesterday, there is sure to be a clash, with some explosive headlines expected. On the geopolitical front, there is also the situation with Russia to consider as markets anxiously await word if the leaders of France and Germany can reach a diplomatic solution today. In addition, it is worth noting that oil fell more than 5% yesterday, putting the possibility of further declines on the table. However, at this stage, crude appears to be searching for a bottom. Here in the U.S., futures are pointing to a slightly lower open on Wall Street.

Pre-Game Indicators

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

Major Foreign Markets:

Japan: closed

Hong Kong: -0.87%

Shanghai: +0.52%

London: -0.56%

Germany: -0.28%

France: -0.61%

Italy: -0.60%

Spain: -1.06%

Crude Oil Futures: -$0.20 to $49.83

Gold: +$3.80 at $1236.10

Dollar: higher against the yen, lower vs. euro and pound

10-Year Bond Yield: Currently trading at 1.988%

Stock Indices in U.S. (relative to fair value):

S&P 500: -3.89

Dow Jones Industrial Average: -50

NASDAQ Composite: -1.45

Thought For The Day:

Continuous effort — not strength or intelligence — is the key to unlocking our potential. -Liane Cardes 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 Latest Greek Drama

2. The State of the Oil Crash

3. The State of the U.S. Economy

4. The State of Fed/ECB Policy

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: Moderately Positive

(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: 1975
  • Key Near-Term Resistance Zone(s): 2080-90

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): Positive
  • Price Thrust Indicator: Positive
  • Volume Thrust Indicator: Neutral
  • Breadth Thrust Indicator: Neutral
  • Bull/Bear Volume Relationship: Neutral
  • Technical Health of 100 Industry Groups: Neutral

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: Overbought- Intermediate-Term: Neutral
  • 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: Positive

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