Reprieve Interrupted

The market has been heading lower since Monday of last week. It appears we were seeing a reprieve on Friday when news of a possible Greek default hit and interrupted it. Typically, when a market becomes oversold we see a decline, followed by a reprieve and followed by another decline. Is the reprieve over?

The put/call ratios showed a third day in a row of put activity on Friday. Additionally, commodities are rallying strongly today and commodity stocks were the culprits that dragged the averages lower. This leads me to believe that the market should rally today.

The caveat is that there seems to be something amiss in Europe. On Friday I noted that where there is smoke, there is fire. While the Greeks issued harsh denials, there indeed was  a meeting regarding Greece. Greece is seeking more lenient terms and a further bailout. How much of a stretch is it to believe that they at least hinted at the possibility of leaving the Euro as a bargaining tactic?

The infinite bailouts can delay the day of reckoning but eventually there will be restructuring, aka defaults. The size of Greece's debt is simply too large and I don't want to be long when a default happens unless the market is prepared. I don't believe the market is prepared but it seems that all the parties involved are trying to give the can another kick.

1 comment:

No Easy Trade said...

[...] At the beginning of the week I noted we were likely to see a reprieve as we saw a string of down days with lots of put buying . We have now seen that reprieve, which makes for tougher trading. We are neither overbought nor oversold, but closer to being oversold. Sentiment is not at a bullish extreme or a bearish extreme, but closer to a bullish extreme. [...]