Now What?June 18, 2012 @ 8:14 AM EST
By now, you all likely know that Greece's conservative New Democracy party won the election redo on Sunday while the left-wing anti-bailout SYRIZA party took second. And this time around the PASOK party says they will throw in with New Democracy in order to be able to form a government. The margins are razor thin and nothing is official, but at least at this stage it appears that Greece is going to stick around for a while longer. And with this particular chapter of the current Greek tragedy coming to a close, the logical question is "now what?"
No, I'm not talking about today's reaction to the news. We all know that it is difficult to tell what the computers are going to do with the SPY or the QQQ's next. And frankly, with the market having little memory from one day to the next, it probably doesn't matter all that much what the trading reaction to the news will be on this fine Monday. Maybe we'll see a continuation of Friday's short-covering rally. But then again, maybe we'll see a repeat of last Monday's "sell the news" disappointment.
Regardless of the market reaction to the fact that Greece isn't likely to leave the Eurozone (EZU) this week, I come back to the question of the day - now what? After all, there are a handful of other issues going on in the world that might attract traders' attention. So, will it be interest rates in Spain and Italy? Will it be the upcoming EU Summit, which purportedly will introduce us to the "building blocks" to closer integration in Europe? Will Apple (AAPL) once again be a focal point or will traders continue to dwell on JPM and GS? Will it be China's (FXI) growth rate and/or stimulative measures? Will the U.S. economic data begin to weigh? Will the budget stalemate in Washington become a topic of discussion? And while on the subject of politics, will Ms. Market care anytime soon about the Presidential election? Or will traders turn to an old favorite and begin to bet on what one Ben Bernanke may or may not say on Wednesday?
While I am sorry to disappoint, I simply don't have an answer to the question of what the focal point will be going forward. It may be any of the above or none at all. As was made abundantly clear last week, Ms. Market has a tendency to make the majority look foolish. Remember, as of a week ago, the sky was falling in Europe and there was no hope. But low and behold, the sun continued to come up each day and the S&P finished at its highest level since early-May.
This does not mean that I think the market is out of the woods or that stocks will move higher from here. However, what I am saying is that the focus of the market may shift this week and as such, we'd best all be on our toes. I'll also add that so far at least, this year's "summer of discontent" has been less painful than those seen in 2010 and 2011. And although the volatility has picked up a bit over the last month, we are not seeing the type of insane swings that were witnessed last summer/fall. Thus, it is safe to say that although Europe isn't likely to leave our radar for some time, the impact of the goings on across the pond seems to be lessening.
I guess my key point this morning is that although the focus may shift in the very near future, it is a safe bet that "the machines" will continue to dominate trading. And because of this, the current news-driven environment is likely to stay with us as long as there are "issues" creating uncertainty.
So, how does one play this "now what?" type of environment we find ourselves stuck in? One answer is very carefully. Remember, the Dow Jones (DIA) can lose 500 points in a flash these days. So, unless or until we see the news-driven environment dissipate, we would continue to "play small" and to keep risk management in mind. Because the bottom line is we just don't know what the next big thing in the market is going to be.
Turning to this morning... Although the pro-bailout New Democracy party won in Greece and it appears that a government will be formed (ND leader Antonis Samaras will now have three days to form a government), U.S. stock futures are now pointing to a soft open on Wall Street.
Thought for the day... "Remember that not getting what you want is sometimes a wonderful stroke of luck" - Dalai Lama
For up to the minute updates on the market's driving forces, Follow Me on Twitter: @StateDave (Twitter is the new Ticker Tape)
Looking for a rules-based system to help guide your market exposure? Download our Special Report on the New "Adaptive" Daily Decision System. This new system employs multiple strategies, utilizes multiple time-frames, is 100% Rules-based, is more active, and more sensitive to trend changes.
Wishing you green screens and all the best for a great day,
David D. Moenning
Chief Investment Strategist
Positions in stocks mentioned: SPY, AAPL
Remember, you are in control your email alerts! You can receive alerts for more than 25 free research report alerts including: The “10.0” Report, The Insiders Report, ETF Leaders Report, and The Focus List.
The opinions and forecasts expressed are those of David Moenning, founder of StateoftheMarkets.com 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 and on our website is for informational purposes only. No part of the material presented in this report or on our websites 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. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT