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Optimism is a Powerful Stock Driver—Street Tracks Greece, China Bounce

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July 10, 2015

And a new day dawns. Bulls may have the upper hand Friday as early broad stock indicators suggest U.S. markets could follow the rebound for battered Chinese shares and the European market’s guarded optimism.

Thursday was pretty ugly (beautiful for volatility junkies, of course). But a fairly dramatic sentiment shift rolled through when Greece’s government late Thursday submitted a new reform proposal. The terms appeared to be closer to creditors’ demands on some of the most divisive issues, financial media said.

The CBOE Volatility Index (VIX) rallied late into the close, briefly poking the closely watched “20” line before wrapping just below there, up 1.6% on the day. Bonds are getting smashed a second day Friday, however, as overall risk appetite is up.

SPX-holds-2050

FIGURE 1: SOLID FOOTING?

Thursday marked a volatile session that included an early-morning rally but a late-day fade that left the S&P 500 (SPX) with a skinny gain. Still, the 2050 support line, facing many tests of late, has largely held. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

China Licks its Wounds. China’s broad Shanghai Composite closed Friday’s session up 4.5%, shaving a bit from recent declines. It was the first weekly advance for the index in four weeks. However, the index remains off nearly 25% from its June high. Analysts remained concerned that more selling is likely despite government efforts. This week alone, Chinese regulators cracked down on short sellers, encouraged small-cap share buying, and the central bank pledged more liquidity. Apple (AAPL) shares have felt some pressure of late, with some analysts saying concern for the Chinese consumer is hitting close to home for the iPhone maker.

And in Greece. Lenders will discuss this newly minted blueprint later on Friday, and a decision could emerge ahead of the weekend, Eurogroup head Jeroen Dijsselbloem said, according to Bloomberg. The reform program is a prerequisite for a new bailout package needed to avoid bankruptcy and a potential exit from the eurozone. Earlier in the week, economists raised the probability of a “Grexit” and markets suffered steep selling after Greek voters rejected lenders’ austerity measures in a referendum last weekend. Europe’s broad stock indexes were logging gains of near 2% early Friday U.S. time.

Fedspeak. As if global news wasn’t enough to keep us occupied, Federal Reserve chief Janet Yellen hits the podium today at 12:30 Eastern. She’s taking on economic topics and could help clear up some of the uncertainty that still hangs over Fed interest-rate policy timing. Fed meeting minutes released this week revealed a panel that’s not hanging its decision on specific data readings. Her luncheon speeches have induced headlines in the past. Boston Fed President Eric Rosengren, who does not vote on interest-rate policy this year but does consult the panel, gives a speech on the economy at 11:35 Eastern. 

Good trading,
JJ
@TDAJJKinahan

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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