A guest post from Dr. John Keppler, author of Profit with the Market Profile: Identifying Market Value in Real Time, now available from Marketplace Books.
Last week the long anticipated Greek agreement was finally reached. Greek political leaders announced an agreement on austerity measures, clearing the way for a deal to cut the nation’s debt and win its second rescue in two years. The accord came after Greek Finance Minister Evangelos Venizelos arrived in Brussels for an emergency meeting of Euro-Region Finance Ministers to discuss the 130 billion-euro ($173 billion) lifeline and a debt swap that will impose a loss of about 70 percent for investors.
However, the Greek crisis is far from being resolved. There are still a number of major hurdles to be overcome. First and foremost is the Greek population's reaction to the deal, which is not likely to be favorable.
The market saw a pullback from the year's high. The CBOE Volatility Index, VIX, jumped nearly 12 percent to 20.79 on Friday. There are a number of economic indicators that will be due this week: retail sales on Tuesday and industrial production on Wednesday. On Thursday, housing starts, jobless claims, and the producer price index is also due. The consumer price index will be released on Friday.
There are a number of catalysts that have helped the market this year, including a host of improved economic data and the Federal Reserve's promise to keep interest rates low. In addition, Fed Chairman Ben Bernanke last week reiterated his plans to hold interest rates at record lows until late 2014. Many economists were looking to see if Bernanke might waiver on that stance after news that employment surged in January and the unemployment rate fell to a three-year low of 8.3 percent.
So far in this earnings season, 352 companies in the S&P 500 have reported results, of which only 63 percent have beaten Wall Street estimates. This compares to a beat rate of about 70 percent on average for the past four quarters and would be the lowest since the fourth quarter of 2008.
Usually, strong earnings are associated with stock market rallies and improved investor sentiment. However, even with this season's relatively weak results, the S&P has increased by nearly 7 percent for the year, and the index has posted gains for every single week in 2012, except for a 0.2 percent loss last week. Consequently, even though we have had a weak earnings season and the obvious signs of an overbought market, I don't expect the bulls to disappear from the market.
This was evident in our Market Profile analysis for last week, despite the heavy volume selling that was observed on Friday, the responsive buying was strong at the 1334.00 on the S&P mini and Friday closed the day above its value area high and just one point below the high of the day. We are just below the top quadrant low for the month of February.
Based on our Profile analysis, the key levels of resistance above will be the 1342.50, 1346.50, 1351.25 and the high of 1352.75. If the S&P futures move lower, our key Profile support levels will be at the 1338, 1336.75, 1334.50, 1330.00, 1327.00, and 1322.50.
As usual, our job will be to analyze the order flow data using our footprint charts to make our strategic trading decisions.
Learn more about Dr.Keppler, his trading, and how to contact him by visiting his website www.strategictrading.net.