Hope Springs Eternal With Europe Moving Higher

In the update this weekend we discussed Europe and economic data as the drivers for the market near term. We are prepared to start a trade shortened week on the upside thanks to Greece. The polls showed voters favoring austerity in the upcoming elections and that sent a positive message to investors who feared the worst. It is still not done and the emotions will remain in place going forward relative to the outcome in Europe. The bigger question is what impact will this have on the week of trading?

Watch IEV, iShares Europe ETF as it test recent lows. A move above $32.95 could result in a trade opportunity short term. The technical data reflects an oversold situation. This is a high risk trade based on all the surrounding news, but it could play out short term with a target near the $34.70 level on the trade. Relative to the longer term view of Europe finding some support on the chart is one thing, stability in the economic picture is another. The latter is the real objective for investing longer term. Europe remains one of the major challenges for the global markets along with all the uncertainty.

Watch XRT, SPDRs Retail ETF as it bounced back into the previous trading range above $58.70. A move above $59.70 offers a trade back towards the top end of the range. The weaker prices in oil and other commodities has put some relief in the consumers pocket and that has created short term optimism from investors in the sector. This is a trade short term, the longer term outlook is still questionable and the questions will remain in effect until the economic picture in the US gains some clarity.

Watch OIL, iPath Crude Oil Trust ETN as oil looks for support and a bounce. If the European optimism relative to Greece lasts for more than one day there will be a bounce in the price of crude. $23.70 would be the short term target which reflects a move in crude back near the $93.80 level. The move would lift XLE, IEZ and IEO as well. The major oil stocks, oil services and exploration stocks have all moved lower on the drop in crude oil. This is all a short term response and trade opportunity only on the bounce. As stated above, unless the picture in Europe improves and provides some positive guidance the market remains in a downward trajectory with brief stops or bounces based on hope and speculation. Take the trades for what they are and manage your risk accordingly.

Watch SPY, iShares S&P 500 index ETF as the overall indicator of market direction this week. The index found support at 1295 and based the balance of last week. To start the week Europe is providing some upside momentum for the broad index. A move above $132.85 could provide a trade up to $135.50 as a trade. On the downside a break below $131.40 would take the index to the 200 day moving average and lower potentially. Both sides are in play, but the Greece news is pushing the upside to start the week. Don’t under estimate the fear felt by investors currently relative to stocks on the upside. The trend is still down and the outlook is still uncertain at best. This is setting up a trade nothing more.

As we start another trading week the challenges remain the same. There are some trade set ups in place, but they are nothing more than a trade that will last until the next piece of news. Cash remains the best sector short term as we watch and take what the market gives one day at a time. Don’t assume anything and more importantly don’t over speculate on what you believe.