The Tail is Wagging the Dog in the Eurozone

trading strategyThis may be a holiday shortened week on the calendar with US markets closed Friday, July 3rd,  but will certainly not be lacking of price action and market impact events.

The June NFP and employment report will be released Thursday morning at 8:30 AM.  Before we get to the main event….obviously Greece…let’s take a quick look at where we stand with 2 days left in the quarter and the first half of 2015.

Equity markets settled last week with marginal losses on Market Averages, and disappointing market internals as declining issues led advancers 5 to 3 on the week.  The DJ Transports and Utilities continue to be the worst performing sectors in the market, as each have losses of close to -5.5% QTD and -10% YTD.

Major Market Averages are now just slightly higher than where they closed on June 17, the day of the FOMC policy statement and Yellen press conference.  Recall that the FED statement and following Q&A was very well received by equity markets with 1% to 1.5% gains the following day.

NASDAQ and the Russell 2000 made new closing highs that Thursday, but they not joined by the S&P 500, DJIA or the NYSE composite.

NASDAQ at 5080.57 has been the best performing market average, +3.7% QTD and +7.3% YTD.  This performance could be in for a challenge as we start the Third Quarter.

Late last week MU, traded off 15% following cautious guidance on DRAM inventories, and any hint of this being a trend, could spell trouble for cap ex spending in the space.

The Russell 2000 at 1279.79 is right behind NASDAQ with gains of +2.1% QTD and +6.2% YTD.  The Russell reconstitution trade was Friday, and the biggest impact we can see going forward is a higher weighting for the biotech sector, and a lower weighting for Oil and gas.

The DJIA and S&P 500 now have gains of just +1% and +1.6% QTD and +0.7% and +2% YTD.  Both are still in intermediate to long term uptrends, although straddling their respective 50 day moving averages the last few months.

Greece is the Main Event Today and likely this week until the June NFP report Thursday morning.  We emphasize again that Greece is a Very Fluid Story.   

Clearly, the spectre of both Capital Controls and the Banks and Financial Markets being closed the entire week comes with levels of uncertainty that are near impossible to model.   Forget about a likely greek exit from the euro zoneoutcome!!   The Fog hopefully will start to lift after Tuesday.

There is not yet excessive contagion risk showing up in sovereign debt yields of Italy, Spain or Portugal with 10 year yields there being up no more than 15 to 20 basis points just before 12:00 Noon on the Continent.

No doubt today will be a tough day for stocks.  It’s also at least mildly annoying that this hits with 2 days left in Q2.  The QTD gains of +1.0% to +1.6% for DJIA, S&P 500 and NYA Are clearly at risk over the next 2 days.  Should the DJIA finish the second quarter with a negative return it would be the first time in many years that the DJIA had back to back negative quarters…….maybe back to 2008-09……I have to look it up.

Equity markets across the Eurozone are lower by 2.5% to 3.5%

S&P 500 futures are lower by 20 to 25 handles.  Should markets open that low later this morning the S&P 500  would be right at the 2075 level that has been tested and held a handful of times in the last 3 months.  That’s the first real test for US stock markets this morning.

Test the 2075 level on the S&P 500. Hold that level for a few hours into the early afternoon and go from there.

tanderson@mndpartners.com tjanderson56@gmail.com

Twitter: @TJAnderson1

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