GREEK DEBT CRISIS and MARKETS UPDATE (9:30 pm EDT)
The Greek people voted on Sunday and decided to reject the current austerity terms of their country's bailout. This is not surprising as anti-austerity sentiment is strong in Greece, but it should be noted that a significant portion of the Greek population voted yes for the current bailout. The final results were 61.3% "no" against 38.7% "yes". Had Greece accepted the bailout, this crisis would probably be over. Without the support of his country's people, Greece's prime minister Alexis Tsipras would have likely capitulated to the eurozone's finance ministers and abandoned his anti-austerity proposals. As it is, the people's support now gives him more leverage to negotiate a better bailout deal, that is, if Greece's creditors will cooperate. Some European officials had said prior to the vote that a "no" decision would be seen as an outright rejection of talks with creditors. German Vice-Chancellor Sigmar Gabriel said after the referendum vote that Greek voters had ''torn down the last bridges on which Greece and Europe could have moved toward a compromise". Many analysts fear that Greece is now on the verge of exiting the eurozone. A summit of eurozone leaders is scheduled for Tuesday and Mr. Tsipras is expected to present new proposals, but eurozone finance ministers are already warning against any unconditional write-off of Greece's debt. To again quote Germany's Vice-Chancellor: " I really hope that the Greek government - if it wants to enter negotiations again - will accept that the other 18 member states of the euro can't just go along with an unconditional haircut (debt write-off)."
It looks like this crisis is far from over.
Not surprisingly, the broad stock market did not take this news very well as the DOW dropped over 150 points at the opening of today's trading and made a new monthly low. It recovered sharply, though, by late morning but then slowly fell again and closed the day with a 44 point loss. The DOW's directional momentum remains 100% bearish. (The S&P 500 and NASDAQ, however, are still mixed bullish and bearish.) The next four weeks could be extremely volatile for all financial markets as it contains several strong reversal zones. We could see markets making more than one strong change in direction. Within this time period we could see a bottom to the current medium-term cycle in the broad stock market, which we will probably look to buy. But how low will the markets fall before hitting that bottom? That is hard to say as the cycle structure is still a bit ambiguous, but we could see the DOW down to 17,000 (and possibly lower). This is why we have a short position in the market now. The current mess in Greece and Europe is (for now) suggesting such a plunge. We need to keep in mind, however, that any positive news on Greece's debt crisis could quickly send equity markets up, and that could happen anytime over the next four weeks. There is currently support for the DOW in the 17,550 - 17,600 range, and so, for the sake of our bearish position, we want to see the DOW start closing below there. With the current financial chaos in Greece and the possibility of a Greek exit from the eurozone, there's a good chance that support will break. Holding my short position in the broad stock market for now.
Gold and silver prices seemed relatively unaffected by news of the Greek referendum "no" vote. Not much has changed with the precious metals since my last discussion of them on June 25. We still have mixed bullish and bearish signals in this market. It may be that investors are confused about how these metals will react to a weakened euro should Greece have to leave the eurozone. A falling euro would boost the U.S. dollar and should, theoretically, send gold prices down. On the other hand, a collapsing European economy might frighten investors into the traditional safe haven of the precious metals. In such a case we could see the relatively rare scenario of both gold and the dollar rising together. My bias right now is a little more bearish than bullish for the precious metals. The current cycle picture for gold and silver is similar to that of the broad stock market. We should be looking for the bottom of a medium-term cycle over the next four weeks. As with the broad stock market, it is uncertain how low this bottom will go. If the precious metals don't start rallying soon, we could see gold quickly down to the $1100 area and silver below $15. To look bullish, gold needs to start closing above $1200 and silver needs to breach resistance at $16.20. Can these metals suddenly turn bullish? It is possible, but it all depends on how investors react to the continuing Greek debt crisis. For now, we will remain on the sidelines of gold and silver and watch for a bottom to buy over the next several weeks.
The ongoing Greek debt crisis and the possibility of Greece's exit from the eurozone is a threat to the stability of the euro currency. Because the U.S. Dollar Index is a measure of the value of the U.S. dollar relative to a basket of foreign currencies with the euro having the most weighted value, a falling euro will automatically boost the dollar. Besides the possibility of a Greek exit (or "Grexit" as it is being called) from the eurozone, is there any technical evidence for an imminent rally in the chart of the U.S. Dollar Index? Well, yes there is. On Sunday a strong bullish momentum signal appeared in some dollar charts making directional momentum now mixed bullish and bearish for this index. (It had been 100% bearish.) In addition, there are other technical signals now suggesting that the dollar could take off strongly soon and perhaps make another run to the 100 mark. A clear break above 96.5 would suggest this is happening. Such a rally could push gold and silver prices down, but, as noted in the precious metal discussion above, that doesn't have to be the case under the current circumstances of the Greek/Europe crisis.
Crude oil prices seem to finally be taking the correction we have been waiting for to complete the bottom of a medium-term cycle that began with the $48.71 low of March 18 (nearby August contract). A low of $52.70 was achieved today which is a bit lower than the normal price target we would want to see for for this correction. We should be looking for a bottom to buy this month, but we don't want to see prices break below $48.71 as that would turn this market bearish. If stock markets continue to fall in reaction to the Greek debt crisis, crude prices may plunge with them, and we may have to reevaluate the cycle picture of this market. We are standing on the sidelines of crude oil for now.
The Greek people voted on Sunday and decided to reject the current austerity terms of their country's bailout. This is not surprising as anti-austerity sentiment is strong in Greece, but it should be noted that a significant portion of the Greek population voted yes for the current bailout. The final results were 61.3% "no" against 38.7% "yes". Had Greece accepted the bailout, this crisis would probably be over. Without the support of his country's people, Greece's prime minister Alexis Tsipras would have likely capitulated to the eurozone's finance ministers and abandoned his anti-austerity proposals. As it is, the people's support now gives him more leverage to negotiate a better bailout deal, that is, if Greece's creditors will cooperate. Some European officials had said prior to the vote that a "no" decision would be seen as an outright rejection of talks with creditors. German Vice-Chancellor Sigmar Gabriel said after the referendum vote that Greek voters had ''torn down the last bridges on which Greece and Europe could have moved toward a compromise". Many analysts fear that Greece is now on the verge of exiting the eurozone. A summit of eurozone leaders is scheduled for Tuesday and Mr. Tsipras is expected to present new proposals, but eurozone finance ministers are already warning against any unconditional write-off of Greece's debt. To again quote Germany's Vice-Chancellor: " I really hope that the Greek government - if it wants to enter negotiations again - will accept that the other 18 member states of the euro can't just go along with an unconditional haircut (debt write-off)."
It looks like this crisis is far from over.
Not surprisingly, the broad stock market did not take this news very well as the DOW dropped over 150 points at the opening of today's trading and made a new monthly low. It recovered sharply, though, by late morning but then slowly fell again and closed the day with a 44 point loss. The DOW's directional momentum remains 100% bearish. (The S&P 500 and NASDAQ, however, are still mixed bullish and bearish.) The next four weeks could be extremely volatile for all financial markets as it contains several strong reversal zones. We could see markets making more than one strong change in direction. Within this time period we could see a bottom to the current medium-term cycle in the broad stock market, which we will probably look to buy. But how low will the markets fall before hitting that bottom? That is hard to say as the cycle structure is still a bit ambiguous, but we could see the DOW down to 17,000 (and possibly lower). This is why we have a short position in the market now. The current mess in Greece and Europe is (for now) suggesting such a plunge. We need to keep in mind, however, that any positive news on Greece's debt crisis could quickly send equity markets up, and that could happen anytime over the next four weeks. There is currently support for the DOW in the 17,550 - 17,600 range, and so, for the sake of our bearish position, we want to see the DOW start closing below there. With the current financial chaos in Greece and the possibility of a Greek exit from the eurozone, there's a good chance that support will break. Holding my short position in the broad stock market for now.
Gold and silver prices seemed relatively unaffected by news of the Greek referendum "no" vote. Not much has changed with the precious metals since my last discussion of them on June 25. We still have mixed bullish and bearish signals in this market. It may be that investors are confused about how these metals will react to a weakened euro should Greece have to leave the eurozone. A falling euro would boost the U.S. dollar and should, theoretically, send gold prices down. On the other hand, a collapsing European economy might frighten investors into the traditional safe haven of the precious metals. In such a case we could see the relatively rare scenario of both gold and the dollar rising together. My bias right now is a little more bearish than bullish for the precious metals. The current cycle picture for gold and silver is similar to that of the broad stock market. We should be looking for the bottom of a medium-term cycle over the next four weeks. As with the broad stock market, it is uncertain how low this bottom will go. If the precious metals don't start rallying soon, we could see gold quickly down to the $1100 area and silver below $15. To look bullish, gold needs to start closing above $1200 and silver needs to breach resistance at $16.20. Can these metals suddenly turn bullish? It is possible, but it all depends on how investors react to the continuing Greek debt crisis. For now, we will remain on the sidelines of gold and silver and watch for a bottom to buy over the next several weeks.
The ongoing Greek debt crisis and the possibility of Greece's exit from the eurozone is a threat to the stability of the euro currency. Because the U.S. Dollar Index is a measure of the value of the U.S. dollar relative to a basket of foreign currencies with the euro having the most weighted value, a falling euro will automatically boost the dollar. Besides the possibility of a Greek exit (or "Grexit" as it is being called) from the eurozone, is there any technical evidence for an imminent rally in the chart of the U.S. Dollar Index? Well, yes there is. On Sunday a strong bullish momentum signal appeared in some dollar charts making directional momentum now mixed bullish and bearish for this index. (It had been 100% bearish.) In addition, there are other technical signals now suggesting that the dollar could take off strongly soon and perhaps make another run to the 100 mark. A clear break above 96.5 would suggest this is happening. Such a rally could push gold and silver prices down, but, as noted in the precious metal discussion above, that doesn't have to be the case under the current circumstances of the Greek/Europe crisis.
Crude oil prices seem to finally be taking the correction we have been waiting for to complete the bottom of a medium-term cycle that began with the $48.71 low of March 18 (nearby August contract). A low of $52.70 was achieved today which is a bit lower than the normal price target we would want to see for for this correction. We should be looking for a bottom to buy this month, but we don't want to see prices break below $48.71 as that would turn this market bearish. If stock markets continue to fall in reaction to the Greek debt crisis, crude prices may plunge with them, and we may have to reevaluate the cycle picture of this market. We are standing on the sidelines of crude oil for now.
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