Stocks finished lower on Monday but off their worst levels as investors grew increasingly worried about a negative contagion effect from the eurozone in the event of a messy Greek divorce.
In talks over the weekend with their credit overlords, representatives of the Athens government failed to offer anything considered new, and talks on extending bailout terms broke down. Getting investors nervous was speculation that capital controls might need to be put in place — which is always the end game before a complete meltdown.
There is still some time for an agreement or another extension, however, so all is not lost quite yet. It’s not exactly the eleventh hour, but you can see it from here. The next major opportunity for a breakthrough is a meeting of all the eurozone finance ministers on June 18.
Also weighing on sentiment was a bleak look at U.S. industrial production levels, which fell unexpectedly in May by 0.2%. That’s a big swing from consensus expectations for a 0.3% gain, and April was revised lower. May capacity utilization was pegged at 78.1% versus consensus 78.4% — and prior month was revised to 78.3% from 78.2%. Those look like small differences, but it’s the direction that is worrisome: backwards at a time when they should roaring higher. What the heck is going on, factories?!
Meanwhile, the latest reading on New York–area manufacturing — the Empire Report, such a grandiose name — was also weaker than expected. Manufacturing in New York fell to its weakest level in two years! The report indicates a slight contraction for the month of June and was well below consensus.
The only really great thing that happened for investors was more merger news. Homebuilders Standard Pacific Corp. (SPF) and Ryland Group Inc (RYL) decided to join in holy matrimony in a $5.2 billion deal. Also, DealerTrak Technologies Inc (TRAK) agreed to be bought by Cox Automotive for $4 billion, Target Corporation (TGT) agreed to sell its clinic business to CVS Health Corp (CVS) for $1.9 billion, and Cigna Corporation (CI) was reported to have turned down a $175-per-share offer from Anthem Inc (ANTH).
Overall, Monday’s session was a carry-over from the somber tone seen on Friday as investors sold stocks to lighten up in anticipation of a serious set of missteps in the eurozone that could potentially send the fragile global economic recovery reeling.
Also, frankly, corporate earnings appear to be peaking, valuations are relatively high, and the Federal Reserve is set to start raising rates. So, this could very well be the moment that bears have been waiting for the past few years. However, they have managed to blow every chance that they have had to push the bull market off track. So, the assumption has to be that any pullback that owes to Greece or the Fed should be seen more as an opportunity to buy favored stocks than the start of something dark and scary.
With that in mind, today I’m recommending a long position in Fortinet Inc (FTNT), a network security software maker that my Trader’s Advantage subscribers have traded many times and is currently rising up out of a two-month consolidation.
Fortinet bucked the broad market weakness to finish virtually flat on Monday and at the top of its range. This is probably the top-priority tech subindustry this year. Buy FTNT at $40.95 limit, good till canceled, for target $44.50. Set a stop at $38.05 limit, good after 11 a.m. ET only.
Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow him on Twitter for his latest take on markets and innovation, and be sure to check out his Top Stock for 2015 here.
