After a “No” vote over the weekend, Greece has never been closer to departing the euro, yet the S&P 500 dipped a modest 0.4% on average volume. Is our market being naive and irrational ahead of Greece’s financial collapse? Or is the Grexit already priced in because everyone who fears it sold a long time ago?
Yesterday’s price-action was constructive. Overnight futures cratered more than 1.5%, but as the sun reached our shores, the panic subsided. While we opened near last week’s lows, almost immediately the selling dried up and we rallied. Supply and demand wise, that tells us it is increasingly difficult to find owners still willing to sell the Greece story. The headlines were as ugly as ever, but few were willing to bail out at steep discounts.
It would have been nice to see prices dip under last week’s lows, the 50dma, and 2,050 before bouncing. This would have flushed out the last of hope and triggered technical stop-loss selling, setting up a traditional double-bottom capitulation. We didn’t get that, but the market never behaves exactly like it is drawn up in the textbooks. Maybe this last leg lower will happen later this week, or maybe supply is so thoroughly exhausted that there isn’t enough left to form a traditional double-bottom. Anyone insisting they want to see perfect chart patterns will miss a lot of good trades and so we have to ask ourselves if this is good enough?
The market was hopeful Greece and Europe would kick the can down the road two weeks ago when it rallied to 2,130. Now that we find ourselves nearly 80-points lower, we can assume the dire headlines have convinced most traders to expect a Grexit.
If the worst is already priced in, then this becomes a compelling place to buy because the potential upside far outweighs the remaining downside. While there could easily be a little more left to this dip, this is a far better place to be buying than selling.