Stocks leapt from the starting bell Monday after the weekend confirmation that eurozone officials had reached an agreement with Greek leaders to provide more bailout aid.
The third rescue plan for Greece includes $27.7 billion in bank recapitalization funds but requires the Greek Parliament to approve far-ranging reforms by Wednesday. The reforms include pension reforms, tax increases, a broadening tax base and the privatization of many public assets. These are essentially the same items rejected by voters in a referendum a little over a week ago. However, for now, the immediate fear that Greece will leave the EU has been assuaged.
European stocks rallied sharply with the STOXX Europe 600 closing 2% higher. Yields on the 10-year German bund rose early in the day but closed down 3 basis points at 0.86%.
U.S. Treasury bonds fell with the yield on the 10-year note increasing to 2.43% from 2.42% on Friday. (Bond yields rise when bond prices fall.)
Gold for August delivery fell 0.2% to settle at $1,155.40 an ounce. Gold is considered a safe haven and typically falls when equities appear to offer higher returns.
Light, sweet crude oil for August delivery fell 1% to $52.50 a barrel. This was attributed to oversupplies and the potential for a deal with Iran that would unleash more supply into an already glutted market.
At Monday’s close, the Dow Jones Industrial Average gained 217 points at 17,978, the S&P 500 was up 23 points at 2,100, the Nasdaq rose 74 points to 5,072, and the Russell 2000 advanced 13 points to 1,265.
The NYSE’s primary market traded 753 million shares with total volume of 3 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 2.7-to-1, and on the Nasdaq, advancers led by 2.5-to-1.
The Dow Jones Industrial Average has made a spectacular run from under its 200-day moving average (17,703) to just above the 50-day moving average (17,973) in just two sessions. Now, however, the index must traverse the thick zone of possible supply above the trendline at 18,000.
My proprietary indicator, the Collins-Bollinger Reversal (CBR) signals buy, as does MACD. If they are correct, the next target for the Dow is 18,200-plus.
The Dow Jones Transportation Average has an even more difficult route of advance as it attempts to clear the zone between 8,300 and 8,500 that contained much of the trading in June before the index broke lower.
The boundary at 8,500 takes on even more importance with the intermediate resistance line intersecting at almost exactly the top of that zone, again at 8,500.
We must bear in mind that the most important reason for stocks to rise is earnings improvement, not international politics. And until we see a legitimate increase in earnings, we will no doubt struggle.
Unfortunately, we have been focusing on the Federal Reserve and politics (aren’t they one and the same?) while FactSet tells us to expect earnings to slip 4.4% year over year in Q2.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.