Euro aims lower, stocks hint at strength amid Greece turmoil

Technicals, news converge

Dollar, gold Dollar, gold

European firms are planning on a cat 3+ hurricane for Greece. There’s good news and bad news there. According to a CNBC story, British electrical retailer Dixons is stockpiling security shutters for its nearly 100 stores across Greece in case the worst case scenario hits. They certainly are not the only ones.

The good news is when an entire crowd prepares for a panic, it rarely happens. So the stories that you hear that European stocks can take another 50% tumble from here is likely piling on. The bad news is the EUR-USD long term chart looks terrible. It’s going to fall.

Click chart to enlarge

fibonacci, euro, decline, greece

This is a monthly chart and I don’t see a scenario where we don’t at least get another test of the 200 month moving average which currently is 1.2064. But it’s not written in stone that it goes lower than that. It all depends on how much fear levels can grow in the time it takes to get there. But I will tell you this much, the current leg down from May 2011 made a lower high. Legs that begin with lower highs have a notorious tendency of breaking support. This is really the first time in a couple of years where the charts are lining up with the news events.

So how did the week start while you were at the Memorial Day BBQ? The euro actually attempted to bounce but as I write this is in the process of failing at first resistance. It shouldn’t surprise you. Why? Well let’s look at some more fascinating sentiment brought to you by the rumor mongering leaders of Europe. The first half of the week they work at scaring the life out of everyone, suggesting that Greece is already gone because if they don’t go on their own, they’ll kick them out just to save face and show Spain who really is the boss.

Then on Thursday EU leaders come out and tell the Greeks how much they want to stay in the EU. To take matters one step further, Italian leader Monti comes out with a statement suggesting they want Greece to stay. So what happens? Bears get nervous and cover in droves. It’s quite remarkable. Bears have done so well lately, have the bulls on the ropes and could have such a knee jerk reaction? Don’t be surprised if it all isn’t retraced back down by Wednesday.

Here’s the problem I have with this market. As you know last week I told you to expect a better week than what we had prior. Monday was the big day. But the rest of the week got no traction whatsoever. What traction we did get was likely just short covering. Great! We need short covering to start any new leg higher but after a while you need somebody to come in with conviction and follow through. That’s what didn’t happen. The closet we got to that was on Thursday afternoon and if the best they can do is panic on a few words out of EU leaders after they spent the first part of the week talking worst case scenario then the market is in trouble.

Let me pose the question to you? Would you commit long term capital based on a bunch of short covering from politicians who change their tune from one day to the next? For intraday people and high frequency traders, this must be paradise. But this market is very close to failing again.

I’ve heard another date, June 18th. There’s a new round of elections for June 17 and if the anti-bailout party wins they could be gone the next day. That’s a little severe but in our work it makes a lot of sense. See, June 18 is right near June 21 which is the Summer solstice which just so happens to be one of our most important seasonal change points in the calendar and Gann year. So if markets are going to change direction, which is a case of perfect timing. Under one scenario, all of the fear and rumor mongering can play out over the next 3 weeks and we could actually get a market low by then, even a bottom.

Next page: Watching the VIX

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