We have added some hedges to our accounts today due to the developments described below. We are open further defensive moves in the coming days should conditions warrant.
In a July 22 video, we noted the weekly chart of the All World Stock Index Ex-US (VEU) “could go either way” and emphasized the need to remain flexible given the fluid situation in Europe. The news from Europe keeps getting worse. From a Reuters exclusive story:
Greece is unlikely to be able to pay what it owes and further debt restructuring is likely to be necessary, three EU officials said on Tuesday, a cost that would have to fall on the European Central Bank and euro zone governments… The officials said that twice bailed-out Greece would be found to be way off track by EU and International Monetary Fund officials who have been assessing the country… It means Greece’s official-sector creditors — the ECB and euro zone governments — will have to restructure some of the estimated 200 billion euros of Greek government debt they own if Athens is to be put back on a sustainable footing…But there is no willingness among member states or the ECB to take such dramatic action at this stage.”
Markets that “could go either way” are now leaning bearish. Since the chart below is an intraday chart, our comments would become more relevant if VEU closes below 39.54. The moving averages labeled A, B, C, and D all appear to be rolling over in a negative fashion. The blue “S H S” shows the “old” bullish head-and-shoulders pattern; the neckline is shown via the blue line. Currently, VEU is below the blue neckline or a potential form of support. A potentially bearish head-and-shoulders is shown via the black “S H S”. A break of the red neckline would produce a probabilistic target of roughly 37.03, which is below the June low.