Too Early to Take Much from Monday’s Gains

The Wall Street Journal reported Monday that the Greeks may be having a change of heart relative to going out on their own sans the euro:

Greece’s conservatives, who support the country’s international bailout program, are drawing level in opinion polls with left-wing anti-austerity party Syriza, suggesting the June 17 election is wide open and could yet produce a government that meets Europe’s terms for keeping Greece in the euro.

If the conservatives win enough votes in June to keep Greece in the euro, the markets would most likely react in a very positive manner, at least in the short-to-intermediate term. The story above was one of the drivers behind Monday’s rally in risk assets.

You always have to be open to a change in the market’s tone, but one day does not make a new trend. Stocks have been overdue for a bounce. Our models showed slight improvement yesterday, but nothing too significant.

Since the weight of the evidence still leans toward weakening longer-term momentum, let’s take a look at a couple of potential positives to keep ourselves honest. We mentioned a potentially bearish set-up for the EAFE Index (EFA) on May 21. EFA was able to retake two of the DeMark TDST levels on Monday, which, all things being equal, is positive, especially if it holds into the end of the week.

From a long-term perspective, when the slope of the S&P 500’s 390-day moving average is positive, the market tends to have a healthy bias. The green arrows highlight areas of support by the 390-day and the red arrow shows resistance in 2008. Currently, the slope remains positive and price remains above the 390-day.

Last week, we noted the somewhat comical nature of the “pro-growth” talk coming back into favor in Europe. U.S. News & World Report does a nice job summarizing the Catch-22 facing policymakers:

The temporary hope for softer pro-growth reforms has created a kind of lull in the European drama, while everybody waits to see what magical plan might emerge from Bonn or Paris or Brussels. But no convincing new plan is likely to materialize, for one basic reason: Growth costs money, and nobody is willing to pay.

About Chris Ciovacco 73 Articles

Affiliation: Ciovacco Capital Management

Chris began his investment career with Morgan Stanley in Atlanta in 1994. With a focus on global macro investing, Chris uses both fundamental and technical analysis to assist in managing risk while looking for growth opportunities around the world in all asset classes.

Chris graduated from Georgia Tech with Highest Honors earning a degree in Industrial and Systems Engineering in 1990.

He is now the Chief Investment Officer at Ciovacco Capital Management.

Visit: Ciovacco Capital Management

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