A largely priced-in and marginal win, as well as a looming FOMC meeting add up to modest profit-taking Monday. As of 11:15 ET the SP-500 (SPY) is off 0.15% as investors wait and see if they’re still “Fed up” after a serving of Greek Supportlova.
Two weeks and about 5% into the market’s rally attempt and “follow-through” has not surprisingly become a bit tougher as uncertainty remains a difficult guest not so easily pushed out the exit. Across-the-pond, Greece’s closely-watched re-vote has amounted to a weak preference for the pro-austerity party led by New Democracy.
The less-than-decisive win in Greece suggests a difficult road ahead for the coalition government when it quickly comes time to implement tougher fiscal and monetary measures. In sympathy, following last week’s second half, 22% upside romp, shares of the Global X FTSE Greece 20 ETF (GREK) are off 3.35%.
Not helping matters, the weak win has allowed bears to draw fresh worrisome attention to other at-risk Debt PIIGS. In the spotlight, Spain’s credit markets are back under pressure with yields on its 10-Yr. note back above 7% following a report of underwater loans a week after the country secured a massive bank bailout but one quickly plagued by investor doubt regarding its scope.
In those other intertwined markets of influence, the EUR/USD is under pressure by 0.85% and confirming a technical topping pivot for a possible bearish flag pattern. Also under pressure, the iShares MSCI Spain Index ETF (EWP) is off 3.50%.
Stateside and on the officially-sanctioned economic front, a quiet session has an equally mild and flat result of 29 for June’s Housing Market Index. Street views, well from the hammock by the beach, called for a downward nudge to 28. Unsurprising, investor attention is fully focused on Wednesday’s FOMC meeting which will be followed by a flurry of reports on manufacturing, housing and jobless claims on Thursday.
With regards to this month’s policy decision, a spate of weakening economic data this past month has the Street convinced the Fed will take monetary action. However, informal polling of analysts suggests an extension of its treasury-based Operation Twist program which is set to expire this month, is growing as the more likely outcome, rather than implementation of a more forceful “QE3” program.
On the technical side, an initiation of “Outperform” from broker Keefe Bruyette has sent shares of eBay (EBAY) to the top of the Percent Leadership board on the Naz’ 100. EBAY is currently higher by 4.50% and roughly 1.35% above its eight-week, flat base breakout pivot of 42.06.
Feeling some relative pressure in front of this Thursday’s corporate confessional, shares of Oracle (ORCL) are off 2.75% after challenging its 50SMA from below on Friday on a closing basis. Buzz today looking to impact shares are fresh rumors the company will announce a key resignation later this week according to UBS.
Finally and in those sometimes accurate heat-seeking option markets, the most interesting development Monday given a still opaque credit market situation, technical ennui in most major averages or actual profit-taking and the Fed still two days out; is the CBOE Volatility Index ($VIX).
The sentiment gauge has slid nearly 8% below 50SMA support and narrowly below the closely-watched 20% level which acted as support twice over the past month.
The aggressive action also puts the sentiment gauge about 12% below its 10SMA. While the action isn’t quite yet oversold (>15%) relative to its mean-reverting short-term average, the sometimes euphemistically-called Fear Index is acting quite divergently confident. Should that be taken as a prescient hint of continued upside for the broader market? Or is it smarter to see a more traditional warning of confident behavior closing in on complacency? Our view is the former, but given two weeks of gains and 50SMA not too far removed from current levels, sticking a collar on that bull makes sense and possibly good cents to us.
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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