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Greece, Recession Odds, and Stock Market Technicals All Bearish

Stock-Markets / Stock Markets 2011 Oct 03, 2011 - 06:36 AM GMT

By: Chris_Ciovacco


Best Financial Markets Analysis ArticleWhile inspectors from the International Monetary Fund, EU and European Central Bank, known as the troika, are in Athens to review the books, Reuters reported Sunday:

Greece will miss deficit targets set just months ago in a massive bailout package, sources said citing a budget draft being adopted by the cabinet on Sunday, in a setback in Europe’s efforts to stave off the country’s bankruptcy.

Two sources confirmed the new budget numbers, which predict a budget deficit of 8.5 percent of gross domestic product (GDP) for this year and 6.8 percent next year, compared with targets of 7.6 percent for this year and 6.5 percent for 2012.

With Germany hinting last week the terms of the bailouts may need to be revisited, these latest developments may put more pressure on financial markets as we enter October. Back in the United States, more economists and economic forecasters are migrating to the recession camp. From the Economic Cycle Research Institute’s (ECRI) website (9/30/2011) :

Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off. ECRI’s recession call isn’t based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down – before the Arab Spring and Japanese earthquake – to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes. In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not “soft landings.”

From a technical perspective, September closed out with numerous long-term bearish signals present on weekly and monthly charts (see table below). The signals below tell us the odds favor bearish outcomes in October. Could stocks rally instead? Sure they could, but it is the lower probability outcome given the fundamental and technical backdrop. The downside potential of stocks and the euro we outlined on September 23 remains in play as we head into the typically volatile month of October.

Our bias will be to favor deflation-friendly assets such as bonds (TLT), the U.S. dollar (UUP), and shorts (SH). The video below provides commentary on the S&P 500’s current trading range, the economic outlook in the U.S., and the monthly bearish signals that carried into the end of September.

Ciovacco Capital Management

    Copyright (C) 2011 Ciovacco Capital Management, LLC All Rights Reserved.

    Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at

    Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. As a registered investment advisor, CCM helps individual investors, large & small; achieve improved investment results via independent research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions. When looking at money managers in Atlanta, take a hard look at CCM.

    All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

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