"There is nothing more likely to start disagreement among people or countries than an agreement."--E. B. White
A much-anticipated deal to rescue Greece finally took solid form overnight and the U.S. market is celebrating.
The agreement has been anticipated for weeks, and there were plenty of critics popping up to point out all the flaws, but the process has been so agonizing that it is a tremendous relief to the market to finally have something solid rather than just more talk about deals to make potential deals.
The big question now is to what degree the market has already priced in this deal, and whether or not the markets can gain more upside momentum from here. The market has gone almost straight up since hitting an annual low Oct. 4, and the vast majority of the recent move has been attributed to anticipation of this morning's good news. The news has to be priced in to some degree already, but it has been such a millstone around the neck of the market that there is great relief, nonetheless.
One thing that favors further upside is many market players are not well positioned for strength. They never had much of an opportunity to build positions on dips the last three weeks, and we have become overbought so quickly that the technical conditions have kept many folks underinvested.
This market has consistently done a superior job of being hard on anyone who doubts it once it starts uptrending. The low-volume, V-shaped moves have foiled the bears and underinvested bulls so often that there's no choice but to embrace them and count on them to continue rather than embrace the logic that says they can't be trusted and shouldn't continue.
Technically, we are set to open near major technical resistance near 1275 on the S&P 500. We are already overbought, so you can bet there will be plenty of bears looking to fade this strength. It is a classic "sell the news" situation, especially since it is easy for critics to attack the structure of the bailout and the entire idea that Europe has dealt with its fundamental problems.
The big obstacle for the bears is the huge supply of underinvested bulls desperate to add long exposure on any dip. The dip buyers are very hungry, and they are going to provide some quick and substantial underlying support. They are tired of missing out on the upside, and they are going to jump in as soon as they have a chance.
The key technical support level will be 1256, which is Monday's high. Watch for dip buyers to step up aggressively if the action fades toward that level.
I'm already hearing many comments about how Europe's problems are not fully resolved and are not going to go away, but there is so much relief that they finally did something concrete that the critics and skeptics are being run over. Watch to see how quickly buyers step up on the first fade following the gap-up open.
Like most everyone else, I certainly don't have nearly as much long inventory as I'd like this morning, but I'll be looking to sell into strength. Once we calm down, I'll be looking to add to positions as they setup and will maintain a bullish bias, but I'm definitely not going to be rushing to chase anything this morning.