February 8 Insights From Art Cashin

The choice selections from today's Art Cashin comments, via UBS Financial Services:

Greek Rescue Rumor And Chippier Consumer Brings Stocks Back From Brink – For much of Friday’s session, fears about the European Union (particularly Greece) sent folks seeking the safety of the dollar. That, in turn, put pressure on oil; gold and stocks as carry trades were liquidated. The carnage began in earnest as the European markets closed. The dollar began to move steadily higher causing the above-noted damage.

The dollar driven selling was not as vicious as the selling on Thursday, but around 12:45 things started to turn rather ugly. They got even uglier as they headed to the day’s lows at 2:00. Rumors circulated that a trading firm in the crude pits was being forced to liquidate contracts.

But, shortly after 2:00, bids began to pop up in stocks as the dollar eased back. With some investigation, traders learned that there were rumors, or at least speculation, that the ECB and others might be cobbling together a rescue package for Greece over the weekend.

Stocks began to cut their losses as did gold. Crude remained hobbled by those liquidation rumors but cut its losses nonetheless. At 3:00, stocks picked up another tailwind. Consumer Credit fell $1.7 billion not the $10 billion some economists had projected. The hope that the American consumer might be willing to consume again helped the late rally.

That late rally was a bit of a mixed blessing. Had they closed on the lows, the probable course of the market might be a touch clearer. A close at the lows would have suggested an “oversold reflex rally” for Monday extending half-way into Tuesday’s session. The rally would then fail followed by a sharp and severe selloff. The late rally took that specificity off the table. We’ll have to review the napkins for clues to the amended course.

Greece And the Gordian Knot – As noted above, the late rally was sparked by speculation that there would be a rescue package announced over the weekend. When no announcement came forward, there was no follow-through on the rally.

The latest speculation is about the inverted yield curve for Greek bonds. That doesn’t allow any wiggle room or time to ease into austerity. Therefore “instant austerity” runs the risk of public backlash, strikes and maybe even unrest in the streets. To buy some time, some folks speculate, that the ECB or some entity could guarantee short term Greek debt – maybe up to one year. That might buy some time. It will be interesting to see if that’s the road that is taken.

Cocktail Napkin Charting – As noted above, the late Friday reversal rally was primarily the result of rumors of a Greek rescue package. There were also technical contributors to the bounce. The S&P made its intra-day low at 1044. That’s its 200 day exponential moving average. Both Walter Murphy and Stock Market Cycles had listed 1043 as a probable target (darn good call).

Friday’s lows will be a critical testing area on any future pullbacks. If they are violated, things could turn very ugly although some see more support at 1030/1035.

For today, the napkins suggest early support in the S&P may be around 1048/1052 with the backup 1040/1043. Resistance looks like 1070/1074 and then 1080/1085. We need to be careful because the Friday bounce may have released enough of the oversold to allow the bears another shot.

Consensus – Watch the dollar and the headlines and rumors from Euroland. If the dollar rallies smartly, things could get very ugly. Stay very nimble.

Trivia Corner Answer - To heir today - The middle son brought the ailing horse an apple every other day. Today's Question - Heads up! Each of the following 4 letter words can be made an 8 letter word by adding the same 4  letter word to each one. (Example - If we gave you step, ball, hold, work, path & fall....the answer would be "foot"). What word fits - A) Some; Pick; Bill; Book; Rail. B) Line; Style; Long; Boat; Like; Size. C) Ding; Boy; Man; Vampire. D) Kingdom; Way; Nations, State.