Stocks Set Up For Rally?
We often talk about the idea of watching the action of the market and trying to listen closely for any messages that may be being offered. To be sure, Ms. Market is not always “talking” and as such, oftentimes there is no message to be gleaned from a given session. However, when messages are available it generally pays to listen and listen good.
For example, stocks rallied on Monday without the benefit of any obvious catalyst. In actuality, it was just the contrary at the outset as traders were treated to the news that the European finance ministers had decided to delay a decision on providing emergency funds to Greece. Given the fact that the IMF had already said that it would release funds needed for Greece to avoid a default – regardless of whether or not a deal had been reached – it could be argued that the decision by the finance ministers was merely a round of political gamesmanship designed to make the point that the Greeks had best do what they’re told this time around. But in any event, the decision by the finance ministers affected the markets that were open at the time, and not in a good way.
The point is that Monday’s market got off on the wrong foot and it wasn’t long before the indices looked like they might break down and resume the recent downward trend. However, a little headline out of the EU seemed to turn things around. It wasn’t a big announcement or anything that was scheduled. No, there was just word that the European leaders had pledged to do what they could to help head off a default.
If this sounds familiar, it should as we’ve heard countless discussions and loads of positive platitudes in relation to the powers-that-be wanting to avert a default or anything else that might set off all of those credit default swaps that the political leaders seem to know so little about. Make no mistake about it; the goal here is to avoid another “Lehman moment” when people start to say, “What have we done?” No one, not even the Germans wants to see a default or anything close to it. Thus, the market appears to be assuming that when push comes to shove, the money will be provided to Greece before mid-July and we will worry about the next problem later.
Sure there are big problems to deal with here as Greece is the tip of the iceberg. But again, the assumption is that the problems will all be dealt with, one at a time – and just in time. For if they are not dealt with, well, the end result might get ugly quickly.
From where I sit, this is the message that is coming from the market right now. While I could be wrong on a moment’s notice, I’m of the mind that anyone who is upbeat about the market has to be making the assumption that this mess in Europe is going to be okay. And given the action that we’ve seen recently it looks as if this is the primary theme. In short, stocks are set up nicely to enjoy some sort of a rally. Assuming, of course, that the Greek government gets their vote of confidence… and that the austerity measures which thousands of Greeks are protesting daily about get passed… and that all of the nations of the EU ratify the agreement… and that nothing else bad happens in the meantime. For if it does, we all know what happens when too many people start to assume.
Turning to this morning… Markets around the globe have cheered word that the Chinese appear to be willing to lend a hand in the European situation. In addition, expectations are rising that PM Papandreou’s new gov’t will receive a vote of confidence today in Greece.
On the Economic front… We don’t have any economic data to review before the bell but we will get a report on Existing Home Sales at 10:00 am.
David Moenning
Editor: The Daily Decision
