Some rotation of money, but Greece still in focus

I thought Greece was over? Evidently not and as it caused some havoc with the sentiment on the day, but in the end the buyers are still believers in the deal getting settled. If you don’t believe it just look at the headlines on any financial webpage or talking head. Extension of the deadline to allow for more arguments or settle the terms of the lending? Therein lies the key question from my view and one that will be answered rather quickly if the rumor is true about the request being formalized tomorrow. Hear that… tick-tock, tick-tock the sound of patience.

Crude oil (OIL) bounced back from early selling where it hit $51 per barrel. The close near $53.50 was helped by the continued tick high in interest rates and the belief the Fed will act on hiking interest rates in early summer. What does that have to do with the price of oil? Good question, the belief is higher rates will act to weaken the strength of the dollar and oil is priced in dollars, thus putting upside pressure on the price oil as the dollar weakens. This will evolve over time, but the talk today about the FOMC minutes out tomorrow spurred the idea for investors, and that lead to speculative buying. Watching $12.30 and the 50 DMA on OIL as we go forward.

Gold (GLD) continued to fall hitting $1208 on the close and down 1.5% on the day. Since hitting the high on January 22nd the metal has tumbled 7.3%. $116.30 was support for GLD and it closed below that level on Tuesday. The metal is definitely oversold technically, but that could continue if investors continue to head for the exits. The micro trend is lower and the short trade has worked well over the last three weeks. Next stop is $112 for GLD relative to support. The scene from the Wizard of Oz when the wicked witch is hit with a pail of water screams, “I’m Melting, I’m Melting”! Love that scene in the movie and being short gold brings the same felling now.

Russia (RBL) has benefitted from the peace agreement with the Ukraine. RBL is up 24% off the January lows. How much more upside is in the move? Based on this news we may have run the course and could see a test before a resumption of the move higher. Still worth watching short term. If you believe Putin is happy with this agreement upside is the dream… if he is not… it will reverse and test the lows again.

Treasury yields continue to move higher putting downside pressure on the bonds. As stated above the belief is growing that the Fed will act to raise short term rates in early summer. The bonds are being sold and money is rotating to where it will be treated better without the interest rate risk. Preferreds (PFF), convertible bonds (CWB) and high yield bonds (HYG) have been recipients of some of the rotation. Definitely on my watch list to follow the money flow as the rotation is going to accelerate if the fear level rises in the bond sector.

Two disappointing economic data points out today. First, Empire state index fell to 7.8 and well below expectations or January’s numbers. Second, Home builders index fell to the 55 level and disappointed based on expectations as well. Still plenty of signs of slowing in some key data points. The question will shift to the FOMC minutes on Wednesday and what surprises or expectations the Federal Reserve has relative to the economy, inflation, jobs and growth. Delicate balancing act for all as we move forward. Plenty of data on tap tomorrow with PPI, housing starts, industrial production and FOMC minutes.

As we can see it was a quite a day relative to the major indexes, but the underlying news and sentiment are still a flip of the coin on the recent advance off the January lows. Keep your stops in place relative to the time horizon and objective of each position. Take it one day at a time and separate the hype/speculation from reality. Patience remains a primary objective as we manage the news driven environment.