Andy’s Market Report 6/17/12

June options expiration is behind us and it ended in the bulls favor. The S&P 500 just came off the best week of 2012, only to have another rally this past week of 1.3%. But, that does not mean we can rest on our laurels because now we have what could be the biggest event of the summer upon us – the Greek elections.

European leaders have basically pleaded with Greece to reject the leftist SYRIZA party as the party promises to reject what would certainly be punishing terms from the 130 billion euro bailout offered by the EU.

The bailout will not be renegotiated, warned German Chancellor Angela Merkel, whose country’s wealth is vital to shoring up its weaker partners in the bloc.

But many in Greece and beyond state that Greece’s lenders are bluffing when they threaten to turn off the funds if Athens reneges on the terms of the bailout – tax hikes, job losses and pay cuts that have helped condemn the country to five years of record-breaking recession.

So, the question is how will the outcome on Sunday affect the U.S. markets? The answer is easy….no one knows.

The only certainty is the gap from 6/6 in the SPDR S&P 500 ETF (SPY) has yet to close. A move back to $129.36 would close the gap.

Moreover, the DOW just pushed above its 50-day moving average. A continuation of that trend has proven positive over the next 6 months, but a failure as seen by an almost immediate push back below the 50-day has been rather volatile for the market.

According to Jason Goepfert of Sentimentrader.com, “when the Dow was lower after it rose above its 50- day moving average, then the next six months were positive 55% of the time”. But the swings ranged from up 22.7% to lower -15.8%. I think we could see much of the same as we enter the summer doldrums. Low- volume allows for widely vacillating markets and that is exactly what we tend to see during the months of July, August and part of September.

As for the short-term direction of the market, most of the major indices are nearing a short-term overbought state. This means that a pullback (1-3 days) is anticipated. Furthermore, the day following options expiration, particularly a triple witching event is historically bearish. However, with the Greece election Sunday I think all of the historical precedents should be tossed aside.

If we do see a push higher at the open Monday I would not be surprised to see an immediate sell-off. Remember, things aren’t so great in the U.S. economy right now. I am amazed how the poor jobs report reported only a few weeks ago has been forgotten.

The best thing you can do right now, stay nimble. Expect volatility and don’t be surprised by a nice “summer doldrums” sell-off.