What The First Greek Bailout Can Predict About Market's Direction Over The Next Few Days

In days when vacuum tubes control the market with a sub-millisecond attention span, and contextual memory is irrelevant, the speculative audience may be forgiven if it has forgotten that the foregone conclusion of tomorrow's second Greek bailout (which will pass) is in any way unique. It isn't: it was just over a year ago today, on May 9, 2010 that Europe's Finance Ministers approved a trillion dollar rescue package aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility. As part of the first bailout Greece got a €110 billion loan. One year later, and about 50% lower on Greek bonds, we are back, with Greece about to get a second, €120 billion+ (does anyone even know how big it is?) bailout, and there is not even one person alive who believes that within a year the third bailout of the insolvent Greek country (with even more stringent austerity measures) won't be on the table (even as the rating agencies are defending themselves in the Hague tribunal for crimes against humanity for their decision to proclaim the Greek bankruptcy as an "Event of Default'). But by then everyone will have printed another cool trillion or two, so who cares. It is all about the short-term. The expectation there is that the market will surge, surge, surge, once the event that has been priced in, gets repriced in over and over again, or something. Well, if history is any indication, as the chart below shows, those hoping for protracted market jump on tomorrow's vote will be disappointed.

We present the S&P performance in the week just before the May 9th announcement, and the two weeks later (incidentally, it is truly pathetic that $900 billion worth of QE2 can only buy not even 200 ES points in the past year). As can be seen in the highlighted candlestick, the market stages a nearly 30 point relief rally that Monday...only to fizzle two days later and to drop by over 100 point in the next 10 days (what happens next is irrelevant but ultimately was the reason for the launch of QE2).

So, now that we are in an identical situation, with just two more QE2 POMOs remaining, with comparable volume technicals (surge on escalator vapor, plunge on iceberg elevator), and with a Greek bailout catalyst, will the next two weeks see the S&P proceed to rise modestly to the 1,300 levels only to plunge immediately after down to the 1,200 level... and probably far lower since the Fed is now actively conspiring what is the best way to breach QE3/OT2 to the public.