Expectations about the vote of confidence for the reconstituted Greek government would pass helped provide a rebound in the equity markets. Without that successful vote Greece would lose its $12 billion progress payment and be forced to default on its debts.

Market Statistics

There is really no alternative for Greece. Tens of thousands of people congregated in front of the Greek parliament building to protest the vote and demand Prime Minister Papandreou's ouster. The people don't want the forced austerity but that should not be a surprise. Greece is a very government focused economy with the majority of citizens working for the government. They don't want lower wages, higher retirement ages, higher taxes, etc. However, they don't realize that a default by Greece could leave the country isolated and in worse shape than would be required by the austerity program.

The vote, which took place at 5:PM ET, midnight in Greece, passed on a slim 155 to 143 vote of the 300-member parliament. Papandreou needed 151 for the vote to pass and his socialist party holds 155 seats of the total 300 members. For the vote to fail it would have required at least five members of his own party to turn against him. There were two abstentions. In theory this means his party can pass the required austerity measures before the end of June in order to qualify for another $12 billion in bailout funds ahead of the July 11th deadline in order to avoid a default.

Today's market move was short covering ahead of the vote. The actual vote was anticlimactic since Papandreou was widely expected to win since there was no alternative. Now the austerity plan and rioting will come back into focus. With the population strongly opposed to the required austerity we could see violence flare up again and cause more volatility in the markets.

I would not be surprised to see a "buy the rumor, sell the news" event on Wednesday. The ECB and the Eurozone finance ministers may feel a little better tonight but the Greek parliament still has to make the hard vote to slash spending, layoff workers, sell assets, raise taxes, cut benefits, raise the retirement age and lower retirement pay. I know how tough that would be to pass that in the U.S. and the Greek people are far more demonstrative and hostile than what we would see in America. The next few days might be pretty volatile. Of course just passing the austerity plan does not mean the end of civil strife and more cuts will be needed later. This is just another step in a long process that will never go smoothly. This is just another kick of the proverbial can a little further down the road. The current austerity plan along with the one from last summer is attempting to slash the budget by 21% of GDP. That would be the equivalent to a $3 trillion cut in the U.S.

Fortunately the Greek vote took traders attention away from the U.S. economy. Existing home sales for May fell sharply to an annualized rate of 4.81 million from 5.05 million in April. That was a year over year decline of -15% and a -3.8% decline from April. Months of inventory increased from 9.0 to 9.3 and the highest since November and home prices fell -4.6% y-o-y.

Unemployment and stringent credit requirements remain the biggest drags on sales. Slowdown in foreclosure processing after the robo signing disaster has slowed distressed sales and that is the largest number of sales. Qualified buyers are searching out those distressed sales in order to get the cheapest house available. When the bank processing and approvals slowed to a crawl the volume of sales slowed. As the mortgage servicers work through their paperwork problems they will eventually put more homes on the market and sales should improve.

Hearing the negative housing numbers failed to stop the morning short squeeze. It was pushing stocks higher from the open and they did not slow until resistance at Dow 12,200 was hit. Several high profile analysts also suggested Bernanke would not say anything new at Wednesday's press conference and that also calmed the worry over a negative outlook from the Fed. The FOMC announcement at 12:30 and the Bernanke press conference at 2:15 are still the two major obstacles in the market's path.

Economic Calendar

After the bell Adobe (ADBE) reported earnings that beat estimates but disappointed with guidance. Earnings were 55-cents compared to estimates of 51-cents. Adobe predicted earnings of 50-56 cents for the current quarter compared to analyst estimate of 54-cents. Revenue guidance was higher at $1.05 billion compared to estimates of $1.02 billion.

Adobe is having problems due to fallout from the Japan quake. Japan accounted for 14% of Adobe's sales in 2010 and that is expected to drop to 10% in 2011. Shares rose +3% in regular trading but declined by -3% in after hours.

Carnival Corp (CCL) rallied +4% after reporting earnings of 26-cents compared to estimates of 23-cents. Carnival said revenues were impacted by the events in the Middle East and North Africa as well as higher fuel prices. Higher oil cost Carnival $150 million for the quarter or 19-cents per share. Fuel prices increased +35% to $673 per metric ton compared to $498 in Q2-2010. Carnival had guided analysts to $659 per ton but prices exceeded estimates. Carnival took delivery of three new ships during the quarter with a total capacity of 6,334 passengers. They signed a new contract to build a 3,611 passenger vessel for delivery in 2015. Their stated goal is to take delivery of 2-3 ships per year. The company said bookings for the rest of 2011 were occurring at higher prices but at lower occupancy rates. The events in the Middle East and North Africa changed the itinerary for more than 300 cruises and that is expected to cost the company 15-cents per share in the second half of 2011. Fuel costs are expected to rise and cost an additional 65-cents per share. I think it would be safe to say that cruising is about to get a lot more expensive.

Carnival Chart

Jabil Circuit (JBL) reported earnings of 57-cents compared and that beat analyst estimates by a penny. Revenue of $4.23 billion was about $80 million above estimates. Jabil manufacturers for companies like Apple and Hewlett Packard. They guided below analyst estimates for Q2 at 52-60 cents compared to estimates for an even 60-cents. Shares of JBL gained 59-cents.

Earnings scheduled for Wednesday are BBBY, KMX, MLHR, FDX and RHT.

Research in Motion rallied +10% on news the company had cut some employees and was a potential takeover target. There were no immediate numbers for the job cuts from the staff of 17,500 but rumors suggested it was around 1,000. Rumors of a takeover were probably just rumors and the oversold stock was due for a bounce. RIMM has been aggressively buying back its stock and its market cap is around $14 billion today. Several names have been rumored as potential acquirers including MSFT, HP, DELL, CSCO, ORCL and SAP. Sheer speculation or more likely investors with heavy losses trying to ignite a short covering rally. However, they do have a strong intellectual property portfolio.

Macquarie analyst, Kevin Smithen, initiated coverage with an outperform rating and a price target of $40. He said the international business was still booming for RIMM (+67% last quarter) and that with the service arm was worth more than the current price. He believes the BlackBerry has a much longer shelf life for enterprise customers and that will continue for a long time.

The day was really all about Greece and even the FOMC meeting was put on the back burner while the cable channels were glued to live shots of the parliament building in Athens. Like I said earlier the actual vote results were anticlimactic. Futures barely budged but the Euro declined slightly and the dollar moved slightly higher.

The key will be the pictures of burning cars and riots in the street on Wednesday. So far there are no riots and police are keeping a high visibility presence and using tear gas against any crowd that fails to disperse. If there are not riots the focus will move back to the FOMC meeting.

Bernanke is expected to not mention any further stimulus programs and will probably guide economic estimates lower while still predicting an acceleration in growth later this year. I am sure he will get questions on the current soft patch and he will probably blame it on Japan. He will point out that gasoline prices are declining as the Fed had expected.

The second Bernanke press conference could be a little more combative than the first one. Reporters may ask some tougher questions and more rapid follow ups. The first conference was a novelty, now they will likely degenerate into fresh meat for a pack of dogs given the current economic environment.

Apple (AAPL) was a prime example of the day's short covering with a +$10 rally. With the stock falling to a seven month low on Monday at $310 the shorts began buying on Monday afternoon. That accelerated at the opening today as the markets started shooting higher.

Apple Chart

The S&P rallied at the open to strong resistance at 1295 and a +1.3% gain. That is exactly where it closed the day after making no progress after the opening rally. This was clearly short covering and if you were not already invested you probably missed it. The touch of the 200-day average last Thursday is looking a lot more like a bottom but the S&P has a long way to go to convince most people the rebound is for real. A close over 1300 after the Bernanke press conference would help a lot.

I mentioned in the weekend letter that I expected a rebound after the meeting as funds setup for quarter end window dressing. The gains over the last three days are a good start but we still need to get Wednesday behind us before we can start feeling more comfortable.

Resistance at 1295 should be decent with round number resistance at 1300 a target. Support should now be 1275.

S&P Chart

The Dow actually spent some time over strong resistance at 12,200 today but could not hold the gains. Actually I think the +109 point day was spectacular even if it was on the back of only four stocks. Caterpillar spiked +$3.21 followed by CVX +1.68, DD +1.33 and IBM +1.20. Everyone else was significantly weaker with PG, BA, JNJ and MRK in negative territory.

The 12,200 level is the critical level. I do expect it to be broken as long as Bernanke does not trip on his tongue. I could see quarter end window dressing pushing the Dow to 12,500 under the right conditions.

Dow Chart

The Nasdaq was the biggest gainer at +2.2% but it was also the biggest loser heading into last week's lows. You can thank a $10 gain in Apple and $8.50 gain in Google for the Nasdaq rally. The Nasdaq is moving into some tough congestive resistance from earlier this year and it remains to be seen if the tech bears have lost interest. The Nasdaq needs to move over 2700 to find any love from cautious investors.

Nasdaq Chart

The Russell chart is the most bullish with a solid bottom at 775 that held for more than a week. Instead of eventually breaking that bottom the Russell finally grew wings thanks to the short covering. Those who were frustrated the Russell did not break were finally forced to cover as the markets anticipated the Greek vote and a calming response from Bernanke.

Russell Chart

Today was about Greece and tomorrow will be about Greek riots and Bernanke expectations. The FOMC is not expected to change anything but their economic projections and confirm that QE2 has died. There will be no mention of QE3 although Bernanke may allude to future policy stimulus if needed just to keep the bond groupies on pins and needles. You can't ever say never if you are the Fed chairman.

The Euro is likely to decline and the dollar rally so oil and precious metals may not have a good day. Wednesday would not be my choice for opening new positions. I would rather wait until Thursday and we see what fallout appears from Greece and Bernanke. Then the window dressers can go to work.

Definitely, enter passively and exit aggressively.

Jim Brown

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