The Wall
Street Journal reported Monday that the Greeks may be having a change of
heart relative to going out on their own sans the euro:
Greece's conservatives, who support the country's international bailout
program, are drawing level in opinion polls with left-wing anti-austerity
party Syriza, suggesting the June 17 election is wide open and could yet
produce a government that meets Europe's terms for keeping Greece in the
euro.
If the conservatives win enough votes in June to keep Greece in the euro,
the markets would most likely react in a very positive manner, at least in
the short-to-intermediate term. The story above was one of the drivers behind
Monday's rally in risk assets.
You always have to be open to a change in the market's tone, but one day
does not make a new trend. Stocks have been overdue for a bounce. Our models
showed slight improvement yesterday, but nothing too significant.
Since the weight of the evidence still leans toward weakening longer-term
momentum, let's take a look at a couple of potential positives to keep
ourselves honest. We mentioned a potentially bearish set-up for the EAFE
Index (EFA) on May
21. EFA was able to retake two of the DeMark TDST levels on Monday,
which, all things being equal, is positive, especially if it holds into the
end of the week.
From a long-term perspective, when the slope of the S&P 500's 390-day
moving average is positive, the market tends to have a healthy bias. The
green arrows highlight areas of support by the 390-day and the red arrow
shows resistance in 2008. Currently, the slope remains positive and price
remains above the 390-day.
Last
week, we noted the somewhat comical nature of the "pro-growth"
talk coming back into favor in Europe. U.S.
News & World Report does a nice job summarizing the Catch-22 facing
policymakers:
The temporary hope for softer pro-growth reforms has created a kind of
lull in the European drama, while everybody waits to see what magical plan
might emerge from Bonn or Paris or Brussels. But no convincing new plan is
likely to materialize, for one basic reason: Growth costs money, and nobody
is willing to pay.
