Greece teased the market for the 16th straight day that a resolution might appear soon.

Market Statistics

It was a low key day with limited economic data and limited earnings reports. The highlight for the morning was Ben Bernanke appearing before the Senate Budget Committee and repeating his testimony from last week word for word including estimates for payrolls, which of course were released on Friday. He did not even update the comments to reflect the actual payroll numbers. Needless to say the market was not impressed but at least it rebounded off its lows.

In answer to questions he did not rule out further QE programs but he said nothing that indicated there were further Fed moves coming in the near future. He warned that lawmakers should not make any material changes in fiscal policy to create a "huge pothole" in the economy. He also warned that the unemployment rate at 8.3% could be sending false signals about the health of the labor market. The decline in the unemployment rate has been due more to workers becoming discouraged and leaving the workforce rather than finding jobs.

Economic reports were lackluster with the Job Openings and Labor Turns Survey (JOLTS) reported only a minor improvement in December. Job openings did increase slightly to 3.376 million from 3.118 million. However, the rate of hiring remained relatively flat at 2.5% compared to 2.3% in November. However, December is not a strong period for hiring due to seasonal inhibitions.

Separations also remained relatively unchanged at 3.909 million compared to 3.986 million. Layoffs did decline slightly to 1.644 million from 1.718 million. The JOLTS report showed continued slow improvement in the job market but nothing to get excited about. Next month's report for January should show better improvement.

The weekly Chain Store Sales rose +1.8% compared to +0.1% the prior week. This is a weekly number with high volatility and is normally ignored. The increase in sales was attributed to buying ahead of the Super Bowl parties.

Consumer Credit for December rose $19.3 billion from $20.4 billion in November. Consensus estimates had been for only a gain of +$7.2 billion. A sharp uptick in non-revolving balances was the primary driver with a +$16.6 billion gain. Credit in revolving accounts rose +$2.8 billion. Consumer credit rose in all but one month in 2011 by an annualized +9.8% rate. Balances have now reached their highest rate since mid-2009. This suggests consumers are confident enough about the future to begin borrowing again. Of course many consumers don't have any choice and need to borrow to live.

The economic calendar for the rest of the week is uneventful. Jobless Claims and Consumer Sentiment are the only items that might capture some investor interest.

Economic Calendar

The market moving news was again Greece. Markets were down in the morning on news there was still no deal and Greece was moving ever closer to disaster. By mid afternoon the news had improved slightly and the markets recovered from early losses.

As of late Tuesday evening in Greece the prime minister is meeting with the troika (IMF, EU, ECB) to finalize the terms for the second bailout and avoid a bankruptcy. The troika meeting pushed off the scheduled meetings with the leaders of the various political parties in Greece in an effort to sell the new terms. The meeting with the political parties has been postponed until Wednesday.

A government official said a draft agreement was being prepared in the troika meeting which suggests there is a general agreement sufficient enough to begin preparation of the papers. Obviously that draft agreement has to be sold to the party heads on Wednesday. Several have already voiced opposition but at this point they don't have much choice. Either agree to the troika's terms or drop out of the euro and watch economic conditions plunge even further using a vastly devalued drachma and no credit.

It would take several years to rebuild enough trust before they could sell debt and in the meantime they could not pay their vastly overstuffed public workforce in any currency that has value. They would have to bring back the drachma which probably would see an exchange ratio for euros in the hundreds. A government worker making 1,000 euros a month would have to be paid tens of thousands of drachmas. Those drachmas would have no real backing since the country would be bankrupt.

For this reason a deal will more than likely get done. It will not prevent a future default but kick the can a little farther down the road and at least take Greece out of the headlines for the next few months.

Greek workers staged a strike to protest the terms of the bailout and riot police had to use tear gas in Athens as the crowd massed outside Parliament chanting "Nazis out!" The riot was due to an acceptance of a requirement to cut government workers. The troika wants 150,000 workers to be terminated over the next several years and the prime minister agreed to cut 15,000 in 2012. Greek government workers are guaranteed jobs for life so that is a major problem for job layoffs. The minimum wage is 750 euros and the troika wants that wage cut back to the same level as other EU countries in the 600 euro range.

The news today suggests there will be further progress on Wednesday but I seriously doubt a signed deal will appear. This is just one more day added to months of meetings. As we get closer to a deal the markets should strengthen but anything can still happen. Remember, there are still rumors Greece has a plan to default in mid March after they get the first tranche of bailout money. Nearly every major analyst expects Greece to eventually default so this dance with the troika is just a delaying tactic. As the terms of the bailouts become more stringent the ability of the prime minister to a) remain in office and b) continue selling the need to comply, will become increasingly impossible.

The euro rallied nearly 1% on the hope a deal was coming together. The rally to 132.09 against the dollar was a two month high. The dollar index declined to a two month low.

Euro Chart

Dollar Index Chart

The plunge in the dollar helped boost gold, silver and oil. Gold rallied +23 to close just under $1750 and recent resistance. A Greek deal could continue to strengthen the euro and push gold back over $1800. Silver is trading in a narrow range under resistance at $35 but holding over support at $34. This consolidation pattern could breakout to the upside and trigger additional short covering once a deal is announced.

Gold Chart

Silver Chart

Oil prices rallied +1.92 to $98.83 on the weak dollar plus a multitude of stories over Iran, Syria, Nigeria, Sudan, etc. The support for crude prices heading into the summer is very strong. February is normally the seasonal low for crude prices and a summer launch from this level could be very strong. Add in the potential for supply disruptions from Iran and other Middle East nations and we could easily see prices break through resistance at $102.

The price was also boosted by an update from the EIA. The government agency raised its demand growth estimates for 2012 by 50,000 bpd to 1.32 million barrels per day. It also raised 2013 estimates by 20,000 bpd to growth of 1.49 mbpd. This is the first time the EIA has raised its demand forecast in four months. The agency also cut its production forecast for output from non-OPEC countries by -140,000 bpd to 52.54 mbpd. The EIA also warned the full year average price for WTI could average more than $100 per barrel for the first time ever.

The price of Brent crude spiked to $117.50 because Brent is the benchmark price for waterborne crude and all oil coming out of the Persian Gulf is benchmarked to some extent to Brent. I expect Brent prices to rise to $125 or higher in the coming months.

WTI Crude Oil Chart

Brent Crude Chart

Earnings news was also lackluster. More than 300 S&P companies have already reported earnings and only 60% have beaten the estimates. Over the last 11 years the average has been 69%. If you go back to 1994 that drops to 62%.

Only 12% have reported in line with estimates and 29% have missed their numbers. The average for earnings misses is 20% so this quarter has definitely been subpar. However, is that the fault of the company or the fault of the analysts? Could it be that analysts were simply being overly optimistic and not taking into account the impact from the Thailand floods, Japan earthquake and the drag from the daily Greek headlines?

After the close Panera (PNRA) reported earnings of $1.42 that matched analyst estimates. Same store sales rose +5.9% at company owned units and +3.2% at franchised units. Panera forecasted earnings of $1.34 per share in Q1 compared to analyst estimates of $1.28. Shares of PNRA dropped -$5 in afterhours trading to $155.40. Given the gains over the last week a $5 decline is minimal.

Panera Chart

Disney (DIS) declined in late trading after announcing earnings that fell short of revenue estimates. Earnings of 80-cents beat expectations of 72-cents but revenue of $10.78 billion was below estimates of $11.2 billion. Disney CEO Robert Iger said the NBA lockout was costly but higher attendance at theme parks was "very encouraging" and a sign of a strengthening economy. The NBA lockout cost ESPN weeks of lucrative games but current viewing of the current NBA games was up. Shares of Disney declined slightly after the report.

Disney Chart

Generating plenty of trades after the close was Buffalo Wild Wings (BWLD). Buffalo shares were dipped in the hot wing sauce with an $11 spike in afterhours trading. Q4 earnings rose +34% to 73-cents compared to estimates of 67-cents. Revenue rose to $220.5 million compared to estimates of $210.2 million. The company operates 817 stores in the U.S. and Canada as of the end of the quarter. Same store sales rose +8.9% for company stores and +5.9% at franchised locations. The company said it expects earnings to grow by +20% in 2012. Shares rallied from the $70 close to more than $81 after the report.

Buffalo Wild Wings Chart

The markets dipped at the open for the second consecutive day but the hope over Greece helped push the indexes to new highs. The S&P rallied to just over 1346 and initial resistance but moving much above that level was a struggle. This 1345-1350 level is going to be a challenge until the Greek problem is resolved. The daily chart remains very over extended without a decent pullback since mid December.

S&P Chart - 5 Min

S&P Chart - Daily

The Dow has broken through strong resistance at 12,750-12,810 and is making new multi year highs every day. The strength today came from McDonalds, Exxon and IBM. The Dow actually pulled back slightly in late January so it should be relatively stronger than the S&P. All the material gains have come from opening gaps with intraday trading over the last three days in a very narrow range. This is the result of low volume and a lack of conviction.

Dow Chart - 5 Min

Dow Chart

The Nasdaq vaulted over prior resistance at 2885 on Friday and then used that level as support both days this week. However, the index has been struggling to move much over 2900. Tech buyers appear to have run out of steam but they are content to buy the dips.

Nasdaq Chart - 5 Min

Nasdaq Chart - Daily

The Russell 2000 has stalled at uptrend resistance at 830 and has traded perfectly flat the last two days. Fund manager interest in small caps appears to have dissipated but at least there is no selling.

Russell Chart - Daily

The market is waiting for the next big headline. Volume was very low on Monday at 5.8 billion shares and only improved slightly on Tuesday to 6.4 billion. Without a headline to move the market nobody knows which way to go. Dips are being quickly bought but on low volume. Market spikes are not being aggressively sold so it appears the bias is still to the upside.

I believe investors are afraid to bet on the 17th version of the "imminent deal" in Greece and are content to wait for an actual deal to appear. The analysts on stock TV continue to say a deal is imminent but Greece will eventually default so the common retail investor does not know what to do. Until we get past this current hurdle and Greece agrees to something we are probably stuck. Once past the "announced" agreement stage there will be various other hurdles to cross as the various votes are held and performance criteria set. Until Greece gets the first tranche of the next 130 billion euro bailout and makes the 14 billion debt payment on March 20th the entire deal is still a moving target. If they do a deal with the troika they still have to do a deal with the private sector creditors on the debt swap. In theory that deal is done pending only a final agreement with the troika. This means we could have a multiple day period with positive headlines where the retail investing public believes the all clear has sounded.

This daily bout of dueling headlines could keep the market sentiment alternating between fear, boredom and exuberance depending on the headline of the day. Expect periods of very low volatility interspersed with extreme volatility.

We need to follow the trend until it ends. So far the trend is still pointing higher.

Jim Brown

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