After The Greek Election – Stock Market Trend Analysis and Forecast

18 Jun

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The world watches as Greek politicians build themselves up into a frenzy.

The Eurozone problem is not really about Greece but rather about the contagion consequences for the rest of the Eurozone that Greece risks triggering.

A Greece exit would change the dynamics of the single currency creating the reality that the Eurozone currency could or maybe would fall apart.

We have seen signs in the credit markets response to the Euro 100 billion Spanish bank bailout by pushing up the Spain’s borrowing costs to Eurozone record highs of over 7% from 6.5% pre-bailout. The belief being, the Euro 100 Billion will have no positive economic consequences for Spain, but is purely to keep Spanish banks liquid whilst insolvent.

 

Good News for the Markets?
The election outcome is expected for the majority of observed trends to start reversing as the Financial Armageddon of uncertainty and fears around Greece, at least short-term, start to dissipate. In such a climate of increasing uncertainty, markets increasingly discount even greater future uncertainties – leading to what we have seen in the stock, bond, property and commodity markets i.e. markets such as stocks, commodities and Euro should rally and markets such as US and UK, bonds, dollar and sterling fall.

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Fundamental Inflationary Background
The fundamental background is that of the world markets about to be exposed to another wave of highly inflationary central bank money printing liquidity.

Stock Market 2012 First Half Strategy
As regularly indicated since Mid December 2011, in view of expectations for a tough year for a maturing stocks bull market during 2012, my strategy for the first half of 2012 had been to take a very defensive portfolio strategy – cutting exposure to the stock markets, increasing gilt exposure and absolute returns strategies (Dec 2012) and then returning to normal exposures (May 2012).

Stocks Stealth Overall Bull Market Investing Strategy
The over-riding growth market strategy since the birth of the bull market in March 2009 has been pretty simple – the greater the deviation from the preceding Highs leads to greater buying opportunities, as the bull market should ultimately resolve to new highs.

Market Sentiment – Market sentiment is usually in synch with the mainstream media, which at this point in time should suggest that it was at its most bearish in the face of an imminent eurogeddon event called the Greek Election.

However the short-term rally that has taken place over the past 2 weeks is contrary to the mainstream media noise, on face value this either implies that the market is discounting uncertainty or that the market is buying to sell on the news.

In terms forecasting trend, it would have been much better for the market to be falling going into the Greece election as that would better sow the seeds for a stronger market reversal.

Following the Election – I expect the short-term sentiment to be bullish leading to an upswing in the markets. The question is, Is It Sustainable?

Stock Market Forecast
This analysis is resolving towards a picture that is not as bullish as I thought it would be given that we have already had a correction, and are in a rally. However it is not as dire as it could also have been.

The key point is that the long waited for Greek Tragedy has finally arrived which will result in much dissipation of uncertainty. The big picture remains exactly as thought :-

In terms of a forecast, an imminent positive trend. How far will the break up go? I believe there are a couple of range trading opportunities in the near-term. However, I am not seeing any real reason to start accumulating much stock in terms of long term investments because there is no clear evidence that the stock market looks set to break out of this trading range so it’s not appealing in terms of longterm risk vs reward. I will wait to see whether the stock market shows relative strength or weakness against this forecast trend.

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