Into the trading week, (July 2- )

Before the ink could dry on any EZ summit documents and it’s measures,  the usual ‘Bear ’suspects were out crying the ‘devil is in the details’ (plan)…just another band-aid…this is going to be a repeat ‘fade’ of Greek bailout in October and/or the recent Spanish bailout when the market did a 40SP handle reversal.  Considering the ES futures were already up 1%> ~20 to 1340 in overnight/premarket on top of the ~15 spike from Thursday afternoon equalling ~35 handles, a case could have been made for a ‘fade’ job just due to the oversized move.  The recent up/ down volatility likely added to this ‘fade’ idea as the easy trade.

 

A different premise was taken here and it started a few days before in speculating the ‘pessimism’ that crept had back into the market with a floor set at SP 1309…”….  You could say expectations are low enough at ~SP1309,  if a credible map is just presented at the summit”.   As recognized (see details covered…ie. sov’/bank link broken/ Banking supervisory system(ECB)…steps to banking union), the market got more than credible, it got a ‘surprise’…No fade job was the premise going into the day,… “..Those fading the upside on that notion may be surprised.  We discussed only needing a credible deal and at this juncture it seems to be, which should allow the market to end decent on the week, month and Q.  The fact we finally got a surprise out of a summit is a positive..” ..Not only was there no fading at all during the day, the market euphoria actually added another ~20 intraday handles to a close of 1362 SP cash.   In all, can’t remember a market day this year when you could add/ buy on a hearty gap and still see gradual gains on single stocks throughout the day.  Simply, what was recognized here and published 1.5hrs before the open became the overwhelming interpretation of the measures proposed. (DJIA +278 2.2%,NASD +85 3%, SP 33, 2.5%)

   

Yes,  many obstacles/ hiccups will emerge over weeks/ months as measures begin to be implemented, but that should not be an immediate concern.  If your main concern to be invested or not was the EZ crisis, the summit measures should be a welcomed relief/surprise and be given benefit of the doubt at this time.  All in, SP ~1400 is more likely than SP~1300 near term, however the latter or lower is still a possibility in the back end of summer.

  

'Into the trading week', remember an integral part in the bullish premise Friday was..” Expectation now will rise for ECB rate cuts and some LTRO as ECB should be pleased with summit to go ahead with easing measures. Also, earnings expectations are depressed, thus any surprises (better than feared) and/or signs it’s not that bad should also be a market positive to go with possible ECB actions".  All in, the holiday shortened week and it’s thin liquidity could only be a positive into ECB meeting before earnings kick off the week after.  Thus, don’t think the move was an impulse reaction that will disappear in a few days like Greece in ’11/or Spain as speculated differently a few weeks back ..”The chances are this event (Spain bailout) will not be a game changer in the big ‘European’ picture and fading will eventually occur as most of the positives were likely built in last week..”  Also, I don’t think that the rally benefited by more than usual short covering and/or QTR end window dressing action as many are claiming. 

  

Upcoming week, corporate schedule is void of any important reports.  It is a time of pre- announcements, but holiday week might make this less likely.  Global PMI’s are due, but recent Flash # makes this an unlikely market driver.  A poor NFP# can only bring back QE chatter into FOMC (Aug.1), so can’t see this driving market negativity.  ECB disappointing is really the only thing to watch late in the week, but it seems unlikely they won't return a favor or two for the EZ leaders' efforts.