Wednesday, May 23, 2012

Markets Worry About A Potential "Grexit"

The markets were acting fairly well yesterday until news hit the wires that Greece's PM was making comments about Greece leaving the euro.  This news shouldn't come as a big surprise, as the possibility has been bandied about for awhile now.  But I guess the fact that they are now entertaining the idea in public brings it into reality.

There have also been rumors going around this morning that eurozone officials have been telling members to make contingency plans for a potential Greek exit (which some are now calling  a "Grexit").  As a result European stock markets are down a fair amount today, and the euro is very weak as well.  The euro is nearing the $1.25 level vs. the dollar, which is just about a 2-year low for the currency.

The dollar is up vs. the euro, which is weighing on commodities as well.  Oil prices are down to $90.35 (when are gas prices at the pump coming down?), and gold has fallen back to $1536.  Copper and silver prices are also weak reflecting concerns about global economic growth.

Asian markets were also down overnight, with Japan down -2.0% following the downgrade of the country's debt rating by Fitch. 

In earnings news, a few retailers reported earnings and garnered positive actions.  PETM is the big winner as the pet retailer topped estimates.  AEO and GES are also trading higher after reporting earnings.  Today's big loser is DELL, which is down -16% after missing estimates and lowering guidance. 

The 10-year yield is also down a lot today, back near its recent lows at 1.71%.  And the VIX, which got down to the 20 level yesterday before snapping back is up another 8% today back to 24.23 in a hurry.  For reference, last week's high in the VIX was 25.14.

Trading comment: The market ultimately repeated its recent pattern yesterday of opening strong but closing weak.  That's not what bulls want to see.  Today the markets opened weak, which is better than opening higher but its the close that counts.  So hopefully the market can cut some of its losses into the close.  On a positive note, I am seeing lots of growth stocks bucking the early weakness and trading in the green today.  AAPL and GOOG are also both higher as of now.  The market is still coming off of grossly oversold levels, and sentiment is also coming off of very bearish levels.  So while the Grexit news is making for scary headlines, I think any positive developments out of the EU could lead to further rallies.

KAM  Advisors has long positions in AAPL, GOOG


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