It has all come down to this.
The Greek debt drama, which first started in early 2010, is coming to a head now as we enter a final weekend of negotiations between Athens and the European establishment ahead of Tuesday’s deadline for a $1.8 billion payment to the International Monetary Fund. The Eurogroup of finance ministers will hold one last meeting on Saturday.
No surprise, then, that stocks mostly finished lower Friday as investors prepared for a financial crisis-style weekend of high-stakes political theater not unlike the weekend in September 2008 when, amid high hopes of a last minute deal, the government let Lehman Brothers collapse.
In the end, the Dow Jones Industrial Average gained 0.3%, the S&P 500 lost a fraction, the Nasdaq Composite lost 0.6%, and the Russell 2000 lost 0.3%.
That boosted the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) July $125 puts recommended to Edge Pro subscribers to a gain of 64% since recommended on Wednesday. Technology stocks were the laggards, with Intel Corporation (NASDAQ:INTC) down 3% — through very little fault of its own — Microsoft Corporation (NASDAQ:MSFT) down 0.9%, Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) down 0.9%, and Apple Inc. (NASDAQ:AAPL) down 0.6%.
Technically, market breadth, as shown above, remains tepid and weak suggesting equities are vulnerable here.
Back to Europe.
German Chancellor Angela Merkel is demanding a deal before markets reopen on Monday morning. Failure would surely rattle markets and accelerate deposit flight out of the Greek banks — potentially precipitating the crisis should the European Central Bank decide to withhold emergency liquidity assistance.
Bundesbank chief Jens Weidmann has already voiced concerns these funds — totaling roughly $100 billion — are tantamount to state financing, which is illegal under the ECB’s charter.
The IMF wants Greece to rely less on taxes and the European establishment to grant debt relief to the country. Greece wants debt relief, higher taxes (if it must do austerity) and the protection of its tourism industry and pensioners. The Europeans want no debt relief, cuts to pensions and cuts to government workers, among other demands.
A new proposal by creditors for a five-month extension of the current bailout program was rejected as inadequate, with Greece’s prime minister reportedly threatening snap elections — potentially leading to a political crisis — if the pot isn’t sweetened.
Someone has to give or else the situation will quickly spiral out of control, leading to bank runs, capital controls and potentially the restoration of the drachma and Greece’s exit from the euro.
Next week also will be shortened by the Independence Day holiday, with U.S. markets closed on Friday.
As a result, the June employment report will arrive early on Thursday, throwing Federal Reserve rate hike tensions back into the mix should job growth remain strong. Deutsche Bank economists are looking for payrolls to expand by 225,000 and the unemployment rate to decline to 5.3%.
So there will be plenty of excitement for investors to content with in the days to come as the typical summertime doldrums look set to give way to a squall of volatility. In response, I’ve recommended a number of put option positions — including the July $54 puts against GoPro Inc (NASDAQ:GPRO) as it drops out of a monthlong consolidation range — to Edge Pro subscribers to profit from the chaos.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Two- and four-week free trial offers have been extended to InvestorPlace readers.
