Although Greece remains the focal point at this time, the good news is that according to sources, the Eurogroup's finance ministers appear to be working toward a deal that would extend the terms of the current bailout for something on the order of six months. This would provide time for both sides to thoroughly work through options and come to an agreement (although the actual agreement isn't likely to get done until the 11th hour of whatever deadline comes next). At the very least, it can be argued that the likelihood of a 'Grexit' is low as long as both sides are still talking. The bad news is that the talks will continue on Monday. Therefore, we are likely to see two more days of rhetoric filled headlines, which can always move the market.
While receiving a lot less attention, the other hot spot in the market these days is Ukraine. The leaders of France and Germany brokered a deal in Minsk yesterday afternoon to end the 10-month conflict and revive the cease-fire agreement. Details aren't available at this time, but Russian President Putin told reporters that the deal calls for the cease-fire to begin on Sunday with each side pulling back heavy weapons, and for Ukraine to have greater autonomy going forward.
Both stories have created optimism in the markets in the very early going. European bourses are up and U.S. futures now point to a stronger open on Wall Street. However, it will be very interesting to see how far the bulls can push the ball forward with another round of Greece negotiations set for Monday.
Current Market Environment
The current environment continues to be challenging. The key is that there are significant cross currents that have kept prices moving back and forth (and back and forth) for nearly two and one-half months now, in search of an equilibrium. The fact that prices are at the high end of the range and that there is hope a deal can be struck between Greece and the Eurogroup can be viewed as a positive sign. However, the way the game has gone lately, any negative input could easily put the indices back at the low end of the pattern. As such, we believe that some caution continues to be warranted.
If one watches the action on a one-minute (or less) basis each day, it becomes clear that high-speed trading continues to dominate the market as the indices are pushed or pulled in a violent fashion several times each day. As such, any important move that might be considered meaningful on a chart should probably be accompanied by some form of confirmation. At the present time, the charts simply tell us that stocks are sitting at the top end of the trading range. The bulls will contend that the indices are merely waiting for a catalyst to break out of the range and begin the next leg higher. And, of course, the bears tells us that the next order of business will likely be a trip back down through the trading range. Good times.
S&P 500 – Daily
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David Moenning is Chief Investment Officer at Heritage Capital Management, a Chicago-based registered investment advisory firm. Mr. Moenning began his investment career in 1980 and formed Heritage Capital in 1989. Dave’s firm focuses on “active management” and focuses on managing market risk on a daily basis. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Mr. Moenning is the 2013-14 President of NAAIM (National Association of Active Investment Managers) an organization dedicated to active management strategies. Follow Dave on Twitter at @StateDave.