Greenspan Predicts Greek Exit
Europe still has big problems with debt, which could push already-indecisive
markets into bearish territory in the coming weeks. From Bloomberg:
The former head of the US central bank, Alan Greenspan, has predicted
that Greece will have to leave the eurozone. He told the BBC he could
not see who would be willing to put up more loans to bolster Greece's
struggling economy. Greece wants to re-negotiate its bailout, but
Mr Greenspan said "I don't think it will be resolved without Greece
leaving the eurozone". Earlier, UK Chancellor George Osborne said
a Greek exit would cause "deep ructions" for Britain.
How Vulnerable Are U.S. Stocks?
To help answer that question, we can turn to the charts. Trends help us filter
out the day-to-day noise in the equity markets. Moving averages are one of
many ways to monitor market trends. Professional traders and managers often
use the 50-day moving average to monitor intermediate-term trends in stock
prices. In the chart below, the Dow's 50-day moving average rolled over two
times, once in late 2007 and again in mid-2008, warning investors of increasing
downside risks (see orange arrows). Note stocks lost an additional 39% after
the 50-day rolled over in June 2008, meaning observable warnings came before
the big plunge.
How Does The Dow Look Now?
The conviction of stock buyers improved at the 2014 October low; notice how
the slope of the Dow's 50-day turned up in a bullish manner (green arrow
in chart below). With investors trying to balance an improving economy with
concerns about Greece and a Fed rate hike, stocks have had an indecisive
look in recent weeks (see orange arrow). The current flat look of the Dow's
50-day tells us to pay closer attention, especially with renewed concerns
about Greece's place in the eurozone.
Investment Implications - The Weight of The Evidence
We can always find things to be concerned about, just as we can always find
bullish evidence. The weight of the evidence is what drives markets. This
week's stock market video takes a step back and reviews the big picture for
bulls and bears.
Last week's push higher in the equity markets gives the bulls some breathing
room from a key support perspective. The bears have regained some short-term
traction via the Fed and eurozone. As long as the S&P 500 remains above
the key range of 1976 to 1988, we will continue with a "less is more" approach,
within the context of a trading range. Below 1988 on the S&P 500, we
will begin to monitor the markets with a more defensive eye.
