Stocks Mixed as Greece, Yellen Loom

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Stocks finished mixed on Monday as Greece remained in the headlines and investors looked ahead to Federal Reserve chairman Janet Yellen’s semi-annual testimony to Congress starting Tuesday. Ongoing fighting in Ukraine was ignored.

In the end, the Dow Jones Industrial Average lost 0.1%, the S&P 500 lost a fraction, and both the Nasdaq Composite and the Russell 2000 posted small gains.

Utilities led the way with a 0.7% gain while telecoms were the laggards, down 0.6%. When slowpokes like AT&T Inc. (NYSE:T) and Duke Energy Corp (NYSE:DUK) are where the action’s at, you know it was a slow day.

Stocks Mixed as Greece, Yellen Loom

The excitement was over in commodities after crude oil dropped out of its recent trading range, falling 2.6% to close below its 20-day moving average for the first time since January. Traders are starting to realize that prices won’t find a bottom — despite the drop in the U.S. oil rig count — until production and inventories roll over. That hasn’t happened yet.

Nigeria’s oil minister Diezani Alison-Madueke told the Financial Times that an emergency OPEC meeting could be called as non-Arab members are uncomfortable with the recent price decline. That resulted in a short-lived intra-day bounce on heavy volume.

But prices resumed their slide after an unnamed OPEC delegate told the press that no material discussions about an extraordinary meeting ahead of the regular meeting on June 6 had taken place. It’s not news that Saudi Arabia has been at odds with the other OPEC members.

Yet it’s hard to see countries like Nigeria trying to overrule Riyadh by cutting production unilaterally — especially since the Saudis could just ramp up production to continue with their goal of smashing prices to recapture market share from U.S. shale producers. I recently outlined a few reasons why I think oil is headed lower.

With big catalysts on deck, investors were happy to put stocks into a stasis.

Greece’s structural reform proposal was apparently lost in the mail and delivery has been delayed until Tuesday. Greece has until Saturday to figure it out. There were reports that a three-page package was rejected, and that a new six-page proposal is now being worked on

Despite the enthusiasm showed on Friday, a deal to fund Greece and keep it in the eurozone is far from complete — with many open questions still to be answered.

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 If that wasn’t enough to keep investors busy, Yellen’s every word, eye blink, and body language shift will be analyzed and re-analyzed over the next two days as everyone tried to divine any shift on the pace and timing of the Fed’s soon-to-begin policy tightening campaign. The trouble is that while GDP growth has been strong and the job market is posting its best performance since the 1990s inflation is below target and the flow of economic data has recently slowed (as shown at right).

The Fed is also very sensitive to any market disruptions an interest rate hike could cause, cognizant of the fact that rates have been near zero since 2008 and that we haven’t seen a rate hike since 2006.

As a result, Yellen will likely say a lot, in terms of volume, but very little in terms of meaningfulness. And whatever she does say will be used by the seers on Wall Street to gauge the likelihood of whether or not a June rate hike is still on schedule.

If you get a sense of friction and nervousness, that’s because there is a wide divergence between where the Fed is and where the market is. Fed policymakers, in their last summary of individual projections, expect rates to finish the year somewhere above 1%; yet the futures market expects rates to finish around 0.5% with now rate hike until around October.

Stocks Mixed as Greece, Yellen Loom

For now, I continue to recommend bets against crude oil and energy stocks as the bounce seen over the last few weeks looks ready to reverse. The ProShares UltraShort Crude Oil ETF (NYSEARCA:SCO) I recommended to Edge subscribers on Wednesday is already up more than 17% while the put options against the United States Oil Fund LP (ETF) (NYSEARCA:USO) recommended to Edge Pro subscribers are up nearly 84% over the same period.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.

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