A couple of quick notes before the markets open for November business:
The big Halloween selloff was no surprise – my weekly outlook at SA called for a near term correction, which was an easy call given the size of the move we saw during October. The McClellan Oscillator had given seriously overbought readings on both the NYSE and NASDAQ last week, as mentioned in the article.
Even with the size of the losses yesterday, we didn’t see a great deal of technical damage. Volume was not impressive, and 5 of the 9 S&P sectors are still above their 50 and 200 day moving averages. We still can’t feel good about a 2.5% down day, but it’s no reason to change our outlook.
Over in Europe, which has been provoking so much financial market volatility, we had a bit of a shocker come out of Greece, where PM Papandreou has decided to put last week’s agreement to public referendum, and called a confidence vote on his government in parliament.
This is not likely to end well. I haven’t written much on the Greek situation lately, but my long term outlook remains what it has been all along: there is little probability Greece can remain in the monetary union. Not necessarily for technical reasons, though I do think that is enough (there’s no way to make the numbers work), but because the Greeks are…Greeks.
A descent into chaos in Greece has to be seen as a real possibility, and that in turn has to be seen as a real threat to the financial markets, but I’m not sure it would be enough to change the primary direction of the U.S. markets. My outlook is still bullish into the end of the year, but we will continue to monitor the market reaction to events, and change course when the data and evidence call for it.
Finally, a note on the U.S. dollar, which is driving everything. My article suggested that the index had found support at 75, which would cap the risk asset rally. Well, not only has it found support, but we have seen a large move into the mid 77s as of this writing. I would like to see that moderate, but with Europe squarely back into the mode of uncertainty, we can’t take anything for granted. This is a tough market and you have to work for your money.