What Grexit?

S&P500 daily at end of day

End of Day Update:

Stocks bounced back from opening weakness following the Greek elections. While this result significantly increases the chances for a “Grexit”, we’ve been down this road before. Last time selling Greek uncertainty was a mistake and it appears traders don’t want to be fooled a second time. Headlines that triggered a wave of selling a few years ago, barely budged the needle today.

Two mitigating factors are the election’s result was widely expected and most institutions have hedged their exposure to Greek default. So it’s not a surprise the market’s reaction was so muted. Of course the thing to be aware of is the lack of a selloff leaves us vulnerable if the situation devolves and is worse than expected.

But just because we don’t have to worry about Greece doesn’t mean we have nothing to worry about. The market is up nearly 100% from the 2011 lows and anyone betting on this market is fat, dumb, and happy. While the market can always continue higher, it is getting harder and harder to find cynics to convert into believers. Markets top when everything looks the best because that is when everyone has already bought all the stock they can.

Trading near record highs, it is hard to identify the next buying catalyst since there is so little fear. While we could see a temporary surge if we break through recent resistance at 2,060, that momentum will likely only carry us to previous highs near 2,100. After that it is hard to figure out what is going to get those that haven’t bought yet to start. If we run out of demand, that leaves us with two outcomes, an extended trading range, or the larger selloff everyone’s been predicting since 2011.

If we hold 2,050 through Wednesday, then we will test the old highs. Fail and prepare for a swift ride to the 200dma.

Jani