U.S. Stock Market - Black Swans From Cyprus

Global financial market investors are walking on eggshells right now awaiting final results from a parliamentary resolution currently being discussed in Cyprus that would actually impose an unprecedented levy on bank accounts as part of a 10 billion euro bailout package from the European Union.

Under a deal struck in Brussels on Saturday, bank deposits under $100,000 in Cyprus would face a levy of 6.7 percent, ripping up the protection savers thought they enjoyed on insured deposits up to that limit, while those deposits above $100,000 would be hit by a 9.9 percent levy. However, everything is on hold right now in Cyprus, with most of its citizens outraged and many participating in mass protests. Banks there are closed per Government directive and most ATM machines are without money.

I am not sure how this will all play out, but the ramifications of such a blatant attempt at “Government confiscation” of depositors’ assets could be “earth shattering” in terms of potential disruptions to global financial markets.

Late last night (Sunday), there was heavy selling of equities across almost every foreign market, with equal-and-opposite flight-to-safety buying of Gold and Treasury securities. Today, cooler heads seemed to prevail, but uncertainties relating to the Cyprus bailout continued to haunt equity investors to some extent.

Here are today’s closing marks, with changes from Friday’s close:

                                                                                    Monday’s Closing Prices                 

Dow Jones Industrial Average                        14,452.06        - 62.05             - 0.43%

S&P 500 Index                                                  1,552.10        -   8.60             - 0.55%

NASDAQ Composite Index                               3,237.59        - 11.48             - 0.25%

Russell 2000 Index                                               947.20        -   5.28             - 0.55%

                       

The NASDAQ Composite Index was the least affected today by the fallout from the Cyprus situation. Apple, the largest component of the NASDAQ, was up 12.06 points (+2.72%) to 455.72. Apple is now up about 36 points (+8.6%) from its early March low as investor fears over competition from Samsung (among other issues) appear to have been overblown.

Gold, Silver, and Treasury Securities prices were all higher today, but changes were modest (<1% across-the-board), and there were no panic buying spikes that I could see throughout the day in these flight-to-safety options for investors.

Bottom Line: Last night (Sunday), it looked like the DJIA could be down as much as 200 points or more today as investors fretted about the latest problems involving the Eurozone's bailout of Cyprus. However, given the extraordinary gains of the last four months, most U.S. equity prices experienced only minor losses today. Heck, Apple was up 12 points and a daily chart buy signal was actually triggered by my computer system in Caterpillar at today’s close. My strong hunch is that we’re not yet done on the upside and that the S&P 500 Index will test its record high again before a meaningful correction begins. While I remain bearish, I think tomorrow could surprise a few traders on the upside as shorts are squeezed yet again. As mentioned in previous columns recently, I still think the best chance for a sustained downside move is after the FOMC meets this week and then issues its usual post-FOMC policy announcement;  as now scheduled for Wednesday, March 20^th at 2:00 PM ET.

Dow Jones Industrial Average 1-minute Bar Chart for Monday, March 18th