Oil, Greece, and a Bounce in the Markets

As expected, markets are beginning to act as if the world’s largest money-printing experiment, QE II (quantitative easing), is really going to end. My views here, first expressed in The Coming Rout (March 8) and reiterated since, is that commodities will get hit first and hardest, then stocks, and then bonds, beginning with weaker issues first before progressing towards the center.

This process is unfolding right in line with my expectations.  The next few months may well prove to be far more interesting than your average summer, although my preferred time for real difficulties remains early fall.

To begin our coverage, the stock market was off to a truly horrible start today, plunging by a couple of hundred points (Dow) before finding a base, and then being ‘rescued’ by a late day rumor that the Greece situation had been resolved.

Here’s the rumor:

Wall Street reverses sharp sell-off on Greek deal 

June 23, 2011

NEW YORK (Reuters) – Stocks closed way off session lows on Thursday on news Greece agreed to a five-year austerity plan, but lingering economic uncertainty ultimately drove indexes mostly lower, keeping a downward trend in place.

The Nasdaq wiped out all its losses, ending the session higher and back in the black for the year.

The news out of Greece set the stage for a resolution to Athens’ credit problems, which have hurt investor sentiment around the globe.

All we have is an unsourced and unconfirmed rumor that ‘the stage has been set’ for a resolution to Greece’s problems.

How much this ‘news’ really had to do with the late day recovery is debatable, as the bounce in the stock markets today came at a miraculous time: The S&P 500 was only one half of a point from its 200 day moving average. With all of the big money now chasing any and every signal that may prove useful, the bounce off of the 200 dma should be filed under ‘self-fulfilling prophecies’ rather than ‘legitimate signs of economic strength.’

I don’t really ascribe much to stocks gyrating wildly in response to rumors, in either direction. News happens. The main trend, whatever it is, will eventually win out, again in either direction.