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Greece’s Dicey Dance Shakes Stock Volatility from Spring Slumber

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June 30, 2015

U.S. stocks have a big bounce in sight for Tuesday, a day after a Greek-led selloff bruised markets around the globe. Monday’s move was enough to shake the S&P 500 (SPX) from the trading range that has shackled this market since early May. That was a welcome sign for some traders (and more on this below) even if Monday’s dive was the steepest one-day drop of 2015 and will push the SPX negative for June. But rumblings early Tuesday revealed rekindled negotiations. It’s still a shaky and developing situation but it looks like Wall Street’s sellers may come up for air.

Still, volatility is alive. The CBOE Volatility Index (VIX), the market’s “fear gauge,” logged its biggest one-day rise since April 2013 (see figure 1). And benchmark yields on the 10-year Treasury note—a catalyst for mortgage rates and other lending—fell back to 2.36% as the world came sniffing around for the relative safety of U.S. bonds. That’s just the kind of market dynamics that can work against a Federal Reserve that’s trying to wean the economy off ultra-low interest rates.

Stock-Volatility-Spikes

FIGURE 1: VIX BREAKOUT.

The CBOE Volatility Index (VIX), which tracks the implied volatility priced into SPX options, finished Monday just below 19 and earlier tapped 19.50. The 34% single-day jump in the so-called “fear gauge” was the biggest in over two years as investors reacted to Greek debt uncertainty and the possibility it’s dropped from euro use. Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Latest From Greece. Developments are changing all the time, but as of publishing: Greece’s government is considering a last-minute gesture to its creditors in search of more favorable financing terms, as the country nears the expiry of its European bailout program on Tuesday night, the Wall Street Journal is reporting. Greece, of course, is also facing default on loan repayments to the International Monetary Fund. The discussions in Athens came as the European Commission confirmed on Tuesday that its president, Jean-Claude Juncker, had approached Greek Prime Minister Alexis Tsipras on Monday night about a marginally sweetened financing offer that would require the Greek government to campaign in favor of creditors’ demand in the country’s July 5 bailout referendum, the WSJ said.

Confines Challenged. It’s important to note a major chart development for the S&P 500 after Monday’s action. The SPX closed just above its 200-day moving average, in the 2053 area. We’ll keep an eye on other chart redecorating now that this market has stirred to life.

Quarter-End: Heed the Stampede. Today is the last day of Q2. That means so-called window dressing—the process of putting lipstick on portfolios for quarterly result reports to shareholders—will likely drive institutional flows higher. Big volume could bubble up at the open and the close in particular, which can leave a few footprints on retail traders. Be watchful.

Good trading,
JJ
@TDAJJKinahan

NC
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