Stocks wilted on Monday as investors start to doubt whether a “Grexit” would be as painless for the eurozone as the optimists want them to believe.
In the end, the Dow Jones Industrial Average lost 0.6%, the S&P 500 lost 0.4%, the Nasdaq lost 0.4% and the Russell 2000 lost 0.8%.
Gold and silver enjoyed a lift on safe-haven inflows, rebounding from three-week lows. Crude oil extended its gains for a third session following increased demand and lowered non-OPEC supply estimates in OPEC’s monthly oil report.
Greece remained in the headlines as the standoff between Athens and the European establishment deepened. The European Central Bank cut off direct funding of Greek banks. And the head of the Eurogroup warned that Greece must apply for a bailout extension by Feb. 16 at the latest.
In a fiery speech to parliament on Sunday, Greek Prime Minister Alexis Tsipras held his ground, saying he was committed to pre-election anti-austerity promises and is not interested in kowtowing to the country’s official creditors.
In the wake of the speech, the Economist Intelligence Unit quipped that the “Greece crisis just got much messier…”
As a result, the euro fell to test 10-day lows early in the morning and cast a pall over futures trading in the overnight session.
In corporate news, McDonald’s Corporation (NYSE:MCD) dropped 1.4% after the burger purveyor reported January sales that missed expectations. Declines in its business in Asia also weighed. Hasbro, Inc. (NASDAQ:HAS) gained more than 7% after reporting in-line results for the fourth quarter along with a dividend hike and a new stock buyback program.
Technically, the S&P 500 is getting pushed off of overhead resistance near 2,075 going back to the beginning of the year. With support at 2,000 and again at 1,975, we’re likely to remain range bound until we see a break in the Greece vs. Europe standoff one way or another. With both sides playing hardball, an agreement likely won’t be found until the markets for one — via pressure on the Greek financial system and/or pressure on the eurozone stock and bond markets.
I’m also watching China, which I think could be an area of focus for those looking for short-side opportunities, in the wake of a muted reaction to last week’s bank reserve ratio cut by the People’s Bank of China and the release of weaker-than-expected trade data.
This is why I recommended the Feb $90 puts against Alibaba Group Holding Ltd (NYSE:BABA) to Edge Pro subscribers on Feb. 4, a position that’s already carrying a gain of more than 150%.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
