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June 23, 2015

No Shame in Waiting Out on Greece This Week

A full recap of this week's outlook in the video below:

Recap: The indices ended green for the week, but ended Friday on a red note. Most notable was the outperformance of the small-caps as they busted into all-time highs.

The wrench in the markets continues to be the Greek debt situation, but bulls are not complaining too much. Like earlier this year, rumor of Greek deals pushed indices into new all-time highs.

This time, however, there is the real possibility of a 'Grexit,' so both bulls and bears needs to be extra cautious. There is no shame in waiting this out this week, because most likely investors will get another can-kick solution.

Opinion: Greece delivers on all its reform obligations and gets the extensions it needs to not 'default.' This is the least likely scenario in my opinion. 'Creditors' will agree to a haircut (a 'loan-remod' of sorts). Though they won't agree to it voluntarily, but will likely end up being what happens.

Why? Greece holds all the aces. The ECB is folding. They increased ELA funding to support the Greek banks but only through the next few days. The Friday Greek outflows €1.2 billion which virtually equal the entire ELA increase already.

Prediction? Eurozone (Meaning Merkel) will do what it takes to get their portion of the money back. This means that they will will yield to Greek demands in order to get it done. This in turn means that all other creditors will take the blow and receive pennies on the dollar, if any. This may take another 'can-kick' to get it done. Meaning that we may have to suffer through another set of pops on "deal" headline rumors.

Note: Experts keep saying fear of contagion. Meaning Will Spain do the same etc. I argue that the contagion is already here. Spain now already knows that the ECB will fold if and when Spain decides to challenge/restructure its debt.

Next week: We now have a new "all important" eurozone meeting on Monday to deal with the Greek banking situation. This is a binary event that will likely move markets whereby the direction of which is unknown; a coin flip.

Fundamentally, this week will mostly focus on the U.S. home sales. Also important is mid-week China inflation report.

Numerous are in resistance territory based on current open interest data. None of this will matter on the event of Monday so be careful and leave room for error.

Caution: Also, investors have been wound in the range for a while, so any emphatic directional move may build more momentum that most traders anticipate. Trades can turn bad. No Hopium. Confused? Don't feel bad. Most pros are not better informed than this.

How to trade? Don't have to. Unless there's some clarity on the Greek situation early next week, most traders should sit those potentially violent days out. Strong sell-offs (if they happen) could be bought since the global thesis has not yet changed.

Here are some of the focal points: Apple (NASDAQ: AAPL) (leader), small-caps (where the real battle lies), rates, oil, currencies, continued lack of conviction in either direction.

*** The facts did not change last week, only sentiment.

Ranges: All the ranges are playing out within our expectations with regards to open interest AND trends. Most investors are still in the neutral zone where bulls and bears are free to roam. We have support below and resistance above. That's why Iron Condors are a decent way to generate income.

Note that the small caps have had a 7-week uptrend (6 green candles and 1 doji that was flattish).

iShares Dow Jones Transport. Avg. (ETF) (NYSE: IYT): Still can't break out from the descending lower highs trend (orange line). Markets likely can't go far without their help.

This story was originally published by Benzinga
© 2015 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters. © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle

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