Morning Musings From Art Cashin
From UBS Financial Services
Greece Puts Out Hand. Euro Bounces On Hopes Package Looms – The Greek government, pushed by imploding valuations of its debt, asked the IMF and EU to pony up with the package. The request not only ended weeks of shaky debate, it apparently, temporarily calmed the emerging panic.
As noted, that hope allowed the Euro to firm against the dollar. The bounce in the Euro caused a rally in gold, crude and stock futures.
For some reason, the stock bounce was a little less energetic than the moves in gold and oil. That changed briefly around 10:00 with the release of the new homes data.
New home sales spiked nearly 27%. The surprising strength in the data initially caused stocks to shoot up sharply. That rally was short-lived. Several commentators like Barry Ritholtz pointed out that the “bounce” should be taken with a grain of salt since it came from a historic low. By late morning, stocks were slipping and it looked like they were getting ready to challenge the post opening lows.
The bulls circled the wagons, however, and stocks churned irregularly sideways until late in the session. Then, apparently delayed buying kicked in led by some of the energy stocks who were benefiting from the strength in crude.
The closing rally carried the market’s weeks of winning to an eight week string.
The Greek Gordian Knut – Traders were a bit puzzled by how the markets responded to Greece’s requesting the implementation of the proposed aid package. Prior to the request, Greek debt was in full panic mode. Yields on Greek bonds spiked to over 12% and appeared ready to explode.
After the request, Greek bonds rallied enough to bring the yield to just under 10%. That was understandable since a potential package might insure that you would actually get your money back.
What was confusing was the bounce in the Euro and the resultant rally in stocks, oil and gold. That reaction seemed to imply that the rescue package was “a given”. Yet there were no details on what kind of austerity program Greece would implement in exchange for an aid package.
Lacking clear austerity, it is hard to believe Germany would put up any funds. To do so would put the German government at risk of failing. (It is a coalition government.)
Conversely, a strict austerity program would certainly bring social unrest to the streets of Athens. That, in turn, might likely bring down the Greek government.
So, traders were puzzled by the pundit response that the request equaled a solution. The devil is in the details.
Cocktail Napkin Charting – As we noted last week, the market internals are quite impressive. Net new highs and market breadth are quite strong. Yet, the market is clearly overbought and somewhat overdue for a rest.
The napkins suggest resistance in the S&P looks like 1222/1225. Support is probably around 1202/1205.
Spotless Again – Our ham radio pal managed to pass along the latest data on the sunspot readings. You may recall that last week we reported that, after a rather large geo-magnetic solar storm, sunspot readings decreased sharply. That condition has worsened significantly. The readings for April 15 through the 21st were 0, 0, 0, 0, 0, 0, 0. There was a hint that a spot might be forming on the 21st but it evaporated before it could be fully formed. We need to see if this marks a protracted return to minima. For now it looks like the sun has hit the “snooze button.”
Consensus – The market will try to keep up its streak of opening each week with a rally. Not much data but Greek cauldron still bubbles. Stay very nimble.
Answer - Poet; Largest Amount = Frost/Most
Milk Person ?; Not Plain = Maid/Plaid
Garden Tool; New = Shovel/Novel
Things You Wear; Needs = Pants/Wants
Today’s Question - What five letter word would be pronounced exactly the same way if you removed the last four letters?
AN ENCORE PRESENTATION
On this day in 1986, folks at the Swedish Institute of Science began to notice something strange. So they picked up the phone and called the Kremlin.
"Excuse us," they asked, "but could you tell us why our instruments are showing a nuclear cloud drifting our way from an area in the Ukraine near Kiev, in the province of Sverdlovsk that we see on our map as the place called Chernobyl."
The initial Kremlin reply was something like - - "Thank you for your solicitous call. However, we not only think your instruments are faulty, your maps must be outdated, for there is no place called Sverdlovsk nor a place called Chernobyl." "We hope to have new maps out by Thursday!"
Well, a little while later, the Russian leaders, looking glowing and radiant, did admit that they had invented a new form of eternal flame. And a variety of biblical scholars (non David Koresh variety) did a minor gulp. For in the book of Revelations a burning Wormwood poisons all the waters of the Earth. The gulp was caused by the fact that in Ukrainian the word Chernobyl means "Wormwood." But that was 24 years ago and you've never felt better, have you? (Editor's update - Twelve years ago there were news reports that some of the regenerating radioactive detritus from Chernobyl had begun to seep into the local river and may spread into the European watershed. Just an odd coincidence, we are sure. Anyway, don't you worry! I'm sure you do know where your bottled water comes from, don't you?)
There was no meltdown on Wall Street Friday. In fact, as the day ended, the bulls had a bit of a hoedown thanks to some positive pundit spin on the aid request from Greece.