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Will the Greece debt drag the entire market back down?

Although there are many other aspects which will affect the next movement of the market such as weak economy, job data this coming Friday, ISM report (PMI index) etc, the Greece debt and the entire Eurozone debt crisis seems to be coming back. As probably every one knew, this issue hasn’t been solved at all, just postponed. EU is kicking the can down the hill and everybody is lying to themselves. A few days ago the market (SPY) raised sharply on news of Greek banks merging and thus providing some stability (if I remember it correctly).

However today the Greek parliamentary (independent) committee issued a report stating that the Greek budget and debt is completely out of control. All governmental provisions to stop the bleeding budget are failing to improve public finances of the country. The report has been issued at the same time when the EU experts are visiting the country to review how Greece is following all conditions given to them for releasing another part of the international loan. So another wave of fear may come back to the market and we may experience another sell off.

When you look at today’s market action, we saw a sharp growth in the morning. The market gaped up and continue rising for the first 30 minutes. Since then, it continued falling. Even though it closed in green, the overall picture is clear. We are probably topping this rally correction and turning back down. It may happen either tomorrow or by the end of the week.

I sold my calls on SPY yesterday and now I am waiting for the next move. Whether it will be Greece, the whole Eurozone debt crisis or domestic economic issues, the market is showing signs of buyers being leaving the market.

If so, what would be the next expectations? There are two scenarios right now. We may be now trading sideways in a range between $124 and $112. So the next move would be down to re-test 111-112 level. The second scenario is that we break down through the $111 resistance and and head further down. My expectation would be down to $100 ($SPX @ $1000).

I am going to wait for confirmation that the market goes down and if that happens I will be reversing my trade to be bearish on SPY (as well as right now I am overall bearish on my other positions).

Happy trading.

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