Greece Defaults, What Next?

In a volatile week, global stock markets and ETFs grappled with the meaning of Greece’s default amid uncertainty over what happens next.

Although Friday was a placid day, it’s hard to imagine that a $3 Billion “credit event” can go ignored, as Lehman Brothers’ default was a $7 Billion event and was one of the triggers of the near collapse and subsequent multi-trillion dollar bailout of the global financial system.  We’ll talk about all of this and more as we look at the question of, “What next?”

On My  Wall Street Radar



In the chart of the S&P 500 Index (NYSEARCA:SPY) above, we can see that RSI remains near overbought levels, MACD is in decline, indicating short term weakness in momentum and that the index is locked in a tight trading range  between 1340 and 1370.  The S&P 500 (NYSEARCA:SPY) has been in this tight, sideways channel since early February, and the longer this channel goes on, the more energy is being stored for the eventual breakout that will surely come.

The Economic View From 35,000 Feet

Last week brought mixed news on the global economic front.

On the plus side, the Greek situation seemed to be resolved, at least for the time being, the February Non Farm Payrolls report showed improvement and ISM Services Index rose.

On the negative side, initial jobless claims on Thursday ticked up and missed expectations, the U.S. January Trade Deficit jumped unexpectedly which will hurt U.S. economic growth,  global economic growth continues to show slowing in China and Europe. Speaking of Europe, European ETFs were down for the week, with the iShares MSCI Germany Index (NYSEARCA:EWG) losing 0.95% for the week and Vanguard MSCI Europe ETF (NYSEARCA:VGK) losing 1.3% for the week as confidence in the Greek solution seemed to be lacking on the Continent.

Looking ahead, one can be quite sure that market players will now turn their attention to Portugal and Spain and the reaction to the Greek default as the news settles in and more details become known.  Already on Friday there was talk of Greece needing yet another bailout and the execution of the credit default swaps payouts will take center stage.

U.S. indexes were mixed for the week, with the SP 500 (NYSEARCA:SPY) gaining just over one point, the Dow Jones Industrial Average (NYSEARCA:DIA) losing 55 points and the Russell 2000  (NYSEARCA:IWM) jumping 1.7% over the previous week’s close.

Gold (NYSEARCA:GLD) added 0.36% as the precious metal complex struggled to recover from the previous week’s sell off.

This week brings us more significant economic reports and ongoing news from Europe. On Tuesday we’ll get the widely watched Retail Sales Report and the Federal Reserve meeting and announcement, Thursday brings the Empire State Index and Philadelphia Fed reports and Friday takes a look at Industrial Production, inflation and consumer sentiment.

What It All Means For ETF Investors

Greece might or might not be out of the way and everyone will be watching the Federal Reserve on Tuesday for hints of future monetary easing or lack thereof.  The sideways technical channel will have to be resolved in one direction or the other as major indexes languish between significant support and resistance levels.  13,000 on the Dow remains an important psychological milestone and one that needs to be convincingly breached for the uptrend to continue.