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Pause at the Top? Marking Time Ahead of Greece, Fed

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February 18, 2015

The S&P 500 (SPX) tickled 2100 for a new record high on Tuesday. The relatively bump-free move to this level could cause the bulls to pause for breath up here as wait-and-see for Greece continues and an afternoon release of Federal Reserve minutes could again alter the rate-hike conversation. Because Greece’s debt problem—a pile of IOUs so big it risks sinking (or at least delaying) Europe’s broader economic recovery and poses some risk to global disinflation—packs some unknowns, it continues to hover over U.S. stock trading. I think the headlines could bring some market movement in either direction but the underlying story isn't likely to have much lasting impact. It’s important for traders to be aware of the situation but not get overwhelmed by the what-ifs.

The Federal Reserve has expressed its confidence in U.S. economic insulation from Greece’s problems and stock bulls clearly aren’t too alarmed. For now, Greece is smack up against the expiration of its current bailout and trying to renegotiate with European Union powers, namely Germany, whose economic prognosis is head and shoulders above Greece’s.  Euro-area members and Greece have been at odds over the formula needed to extend the country’s 240 billion-euro ($274 billion) rescue. Now, reworking the loan and restructuring the debt are two quite different feats.

FIGURE 1: NEW RECORD The S&P 500 (SPX) with Tuesday’s feat proved there was little chart resistance to slow a relatively quick climb to 2100 after a soggy start to the year. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Snowed In? Housing Disappoints. Housing and retail sales reports have taken on added importance in the wake of a steady string of improving hiring and, finally, signs of higher wages. Investors want a nice neat line connecting that job market data and the spending reports that track the fruits of the labor market. Today’s figures may be too messed up by winter weather. Construction on new U.S. homes dropped 2% in January to an annual rate of 1.07 million units, as heavy snowfall slowed builders in some regions such as the Midwest and Northeast. Housing starts in December, meanwhile, were revised up to 1.09 million. January permits for single-family homes, which account for three-quarters of the housing market, fell 6.7% to an annual rate of 678,000.

In a Word. The minutes from the Federal Open Market Committee’s January meeting will hit at 2 p.m. Eastern, in the middle of the U.S. trading day. At that meeting, Fed policy makers said they’d remain “patient” about hiking short-term interest rates. But…were some members growing less attached to this word? Any clues on that and other potential indicators about the course for monetary policy could emerge in the minutes up for scrutiny this afternoon. If “patient” appears to be on the editing room floor, buzz around a June rate hike could be revived. If members continue to believe patience is a virtue they quite like, well, rate-hike talk will be pushed out.

Open the Books. It’s time again for a little hedge fund exposure, the regulatory undressing that allows retail investors a peek at the share shuffling at some major hedge funds. Notable in this batch: Carl Icahn made no change in Apple (AAPL) as his holdings stay at just over 52.76 million shares. Now, Warren Buffett did a little house cleaning, lightening up on oil holdings and going heavier in known Dog of the Dow IBM (IBM).

Good trading,
JJ
@TDAJJKinahan

NC
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