Greece Economic Cloud Looms Over ETFs and Markets in Trading Week Ahead

Like Hercules battling the hydra, European leaders cut off one head only to see another appear.

Last week’s markets were largely dominated by the continuing Greece drama, as Greece politicians haggled over a debt and austerity deal aimed to woo the ECB and IMF into issuing more bailout money.  Markets and ETFs idled in patience as Greece politicians and bond holders continued to postpone talks until “tomorrow.”

On a technical basis, markets declined a bit but remain in dangerous territory for a correction.

On My Wall Street Radar

S&P 500 (<a target=

In the chart of the S&P 500 above, SPDR S&P 500 ETF (NYSEARCA:SPY) we see that the index is channeling sideways at major resistance.

RSI remains overbought and MACD is about to “roll over” to a sell signal.

However, on a longer term, we see that a “golden cross” has been formed which portends higher prices ahead.

All of this indicates that S&P 500, SPDR S&P 500 ETF (NYSEARCA:SPY) is overextended in ready for a short term correction within the context of a longer term uptrend.

The View From 35,000 Feet

All of this action occurs in response to headline news from Greece.  Last week was a roller coaster ride that took European indexes on a wild journey, with steep declines on Friday as Vanguard MSCI Europe Index (NYSE:VGK) declined 2% on the day and iShares MSCI Germany Index (NYSEARCA:EWG) shed 2.6% on fears over Greece.

Closer to home, S&P 500 (NYSEARCA:SPY) and the Dow Jones Industrial Average SPDR Dow Jones Industrial Trust ETF (NYSEARCA:DIA) both declined approximately 0.7% while SPDR Gold Trust (NYSEARCA:GLD) gave up 0.5% on a stronger dollar.

So as the week came to an end, little did we know that as soon as Greece did finally strike a deal, the EU immediately struck it down, branding it as “insufficient” for any bailout money.

One would think that such a shut down by the EU would have sparked a global market panic on Friday, however major US markets and ETFs responded with only a slight drop in price.  Perhaps markets will react come Monday Greece must have a deal finalized and approved deal for the EU or face default and exit from the Eurozone.

Last week’s news at home was a mixed bag as well, as the initial jobless claims figures improved overall yet consumer sentiment decreased; both indicators reflect the fact that our economic growth is improving, albeit slowly.  One also wonders if our economy can handle a Eurozone shock; after Dr. Ben’s testimonies to Congress last week, I truly wonder if he has enough water to put out a European fire in America.

What to watch this week obviously starts with Greece, as Monday and Tuesday will (or should be) do or die for the small country and the Eurozone.  If Greece adopts a deal that is yet again deemed insufficient by the European Union, he country will likely run out of money sometime in March, while a solution could temporarily dampen the flames.  If the apparent forthcoming solution is yet again unsatisfactory, markets will likely go from Greek heartburn to chest pains and then tomorrow’s global heart attack.  Next week is also a monster week for Economic Reports and indicators, as the Philly Fed, Jobless claims, home builders index, industrial production, FOMC statements, retail sales, Empire State, Leading Indicators, among others will provide a blizzard of data to digest and which we hope will shed more light on our ongoing economic recovery.

Bottom line:  If Europe can slay its hydra, the world can move towards recovery, but if the hydra grows another head, either in Greece or perhaps Portugal or Italy, the Herculean battle of recent days will continue.

Disclosure: No positions in ETFs or stocks discussed in this article.

John Nyaradi is the author of The ETF Investing Premium Newsletter.