Greece again? Really? How many times are we going to play this song? The story of the little boy who cried wolf is starting play in my head. Again there is a “rumored” agreement to agree to draft an agreement to extend the the bailout with Greece. Oh my! I have a headache over this news, and the obvious result was a drift higher in the major indexes as buyers are weary of listening to the various agreement scenarios. The Greece ETF, GREK rose more than 11% on the news today. Technically this sets up a run higher as it breaks from consolidation, but the real proof will be in the follow through to the rumored agreement. If this is just another wolf cry… it will fall faster than it rose. Speculation in trading makes for a volatile trade and the emotions can work against you as well as they can work for you. If the agreement comes to fruition there will be plenty of opportunities to make money going forward.
Europe (IEV) is a winner as well on the charts today… but, the agreement will have to be concluded to validate the move in the index. $45.30 is the November higher we are trading against and the upside continuation will need to move through this resistance short term. Europe has been a favored sector for investing, my view, since the stimulus agreement was signed to help kick start growth of the economic environment throughout Europe. We own the sector and continue to be patient with the outlook near term.
The European Union Members would be worth watching as well on this development. Belgium (EWK), Germany (EWG), Ireland (EIRL), Spain (EWP), France (EWQ), Italy (EWI), Netherlands (EWN), Austria (EWO), Portugal (PGAL), Finland (EFNL), Denmark (EDEN) and United Kingdom (EWU) all have country ETFs that allow you to break the whole into the parts and trade with the leaders. The risk of the individual countries versus the whole is obvious, but the opportunities do exist going forward.
The euro (FXE) rallied 1.3% off the low Friday holding support and remains in the base building process short term. For now the currency looks to have established a low. The dollar (UUP) obviously reversed again the euro on the move and both remain on our watch list going forward.
The rumored move to renew the bailout was also positive for the US markets as the indexes moved from the downside to the upside on the day. All said, maybe this is the final rumor that becomes fact.
For me the geopolitical risk is still the number one issue. The anti-austerity governments may throw a wrench in the process for the EU and the financial systems throughout Europe. Because the risk is still relevant any trades in this sector has to be just that… a trade. Stops need to be firm to protect against the downside issues the sector. Remember the driving factor is stimulus from the ECB similar to the US QE stimulus. Defaulting on sovereign debt would trump that and volatility would be the result. Thus, the need to protect against the downside risk from the events that could take place. I am treating this as a news driven sector and risk management has to reflect that view. Don’t allow emotions to cloud or distract your discipline.