Traders love a good crisis - it gives them extra volatility to trade. It will all net out in the end in a week or so, but all that crazy volatility is like free money to skilled traders. The trick is to avoid getting caught up in the emotion of the drama.
As I have said from the beginning of the Greek crisis, an eleventh-hour deal is inevitable. This week is that eleventh hour. A week from now the deal will be in the rear-view mirror.
The deal for Greece is virtually in the bag. There may be some nuances that will change over the next few days, but the final deal is the one presented by Europe last week and to be voted on by the Greek people on Sunday. So whatever the proposed deal looks like this Friday will be the final deal. Although, it is worth noting that the details will evolve as implementation of the deal proceeds in the coming months. All that's left is drama, lots of it.
Europe seems to accept that the Greek referendum is a reality and are now focused on selling the deal to the Greek people.
Politically, the Greek leaders can't be seen as being enthusiastic for the deal since it still feels a bit too harsh and too much like austerity for the main political parties to accept it, especially the main party that was elected to oppose exactly deals like this. Still, it's the best deal that Greece can get. The Europeans are also in a hard place, needing to protect a legacy of tough, disciplined financial management (or at least appearances.)
Neither Greece nor Europe wants or can afford a Greek exit from the euro zone. There is like zero chance of that happening. If Greece were to exit the euro, Russia and China and Iran are waiting in the wings to embrace Greece, a prospect which would be a horror for a united Europe. And if Europe can't make Greece work, their odds of success with Ukraine are even less. In short, Europe absolutely will assure that a deal with Greece deal happens.
Granted, this is not a truly final deal to end all deals for Greece, but merely one small step of a rather long process, but a very necessary step.
Sure, Greece may end up being in technical default of their IMF payment tomorrow, but that's a minor detail compared to the political process of accepting the overall deal through the popular referendum on Sunday.
In any case, the deal is effectively in the bag, despite the coming week of drama.
AFAICT, there is only modest risk of serious contagion in Europe itself, and essentially no risk of contagion to the U.S. markets, other than the knee-jerk reactions of traders to the initial shock of the crisis. If anything, U.S. markets are more likely to be viewed as a safe haven.
How will NASDAQ and the markets react? Sure, the initial reaction will be quite negative, but then rationality will gradually supplant the initial knee-jerk emotional reaction. Hard to say how deep the initial dip will be and whether it will just be a single day or two or three, but inevitably the reality of the deal being finalized on Sunday will take root and cause the market to bounce.
To be sure, it may take a couple of days for the pundits to come around to accepting that a final deal is indeed on the table and that the referendum on Sunday is simply a final rubber stamp, and all that's left is a large amount of pompous political theater to make it clear that nobody likes the deal however necessary it may be.
How to play this crisis? The simplest play is to do absolutely nothing, hang tight, sit back and enjoy the show and know that within a week or two or three it will all be ancient history.
More adventurous souls can of course play the dips.
NASDAQ futures are down sharply at this moment, indicating a 1.25% dip at the open, but as always we must caution that futures and the opening move are frequently not reliable indicators of the market trajectory for the rest of the week.
Today and tomorrow are the end of the quarter, so some fraction of market participants, including mutual funds and hedge funds will be squaring positions to position their portfolios and profits for the quarter. Wednesday will be the start of a new month and a new quarter. I expect that by Wednesday the reality of an impending Greek deal will have set in.