Grexit: Should We Care?

By Jani Ziedins | End of Day Analysis

Jun 25

End of Day Update:

The S&P500’s indecisiveness continues as last week’s rebound turns into this week’s selloff. The index slipped back under the 50dma and closed just two points above 2,100 support. Volume was average, but higher than recent lethargic, summer trade.

We received positive economic data and Obamacare news today, but Greece weighed on prices as another drop-dead date came and went without a resolution. The most noteworthy thing is for as fatal as Greek headlines have become, US stocks are proving incredibly resilient. The long feared Grexit has never been closer, yet we stubbornly remain within than two-percent of all-time highs. Hardly panic territory.

There are two ways to explain this complacency. Market participants have grown tired of Chicken Little’s false alarms and are ignoring this round of Grexit fear mongering. Everyone who sold the Grexit Part 1, 2, and 3 came to regret that decision as prices rebounded to new highs not long after. Many of those investors won’t be fooled a fourth time and are holding steady in the face of increasingly ominous headlines because they know a last-minute deal is right around the corner.

The other possibility is the market took a rational look at the risk posed by a Grexit and realized that with five-years of preparations, the fallout will have little impact outside of Greece itself. While I’ve written about the limited impact a Grexit for some time, I’m truly surprised the market is reacting so rational to this uncertainty.

The challenge for the speculator is figuring out which scenarios is driving this complacency because that determines the direction we go when Greece finally defaults. If the market assumes Greece won’t default, the default will trigger a panic selloff. But if prices are holding steady because rational investors realize Greece doesn’t matter, then a Greek default will be old news by lunchtime.

While don’t know what will happen next week, I know stocks are not being sold at a discount, meaning anyone buying this risk is not getting paid for it. As a trader I will happily hold risk for the right price. A few points from the highs is not a meaningful discount and is why I’m passing on this trade.

Individual Stocks:

$AAPL – Apple’s attempt to reclaim the 50dma failed for a second day as early strength faded into the close. There is no reason for long-term owners to abandon the stock, but it is hard to be excited about this price-action and the weakness will likely persist.

$EBAY – Ebay continues to trade well following its break above $60. While not a big momentum name, the stock is showing constructive strength by moving to multi-year highs ahead of the PayPal spinoff.

$FEYE – FireEye is searching for support following this week’s 7% pullback from last week’s highs. $50 provided minor support in early June and is trying to do the same here. The risk is predatory traders pushing the stock under $50 to flush out all the defensive stops under this obvious stop-loss level. For those looking to get into FEYE, a break under $50 but then quickly reclaiming it could signal the capitulation bottom of this near-term pullback.

$NFLX – Netflix stumbled from all-time highs after Carl Icahn revealed he closed out of his epically profitable trade. Upgrades, downgrades, and gurus hyping and bashing a stock don’t change the fundamentals. These statements are nothing more than one person’s opinion and their impact on a stock’s price is fleeting at best. There are many reasons to avoid NFLX, but what Icahn did with his position is not one of them.


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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.