Looking at the US ‘numbers’ over the last couple of weeks, including the Fed’s remarks, I have difficulty building a case for an improving economy and market place. When including the sad financial news freely flowing from the Eurozone, we have a mix of real uncertainty if not outright doubtfulness we will see anything of a prospering market before 2014; IF THEN! What I see is a World market place descending into the depths of real precariousness diving further down than can be believed by the most arduous perma-bears.
With out a doubt we are headed down but let’s take this in baby steps following the easiest markets downtrend markers of late. First the obvious, the markets will NOT fall to zero. O.K. So far so good in our analysis, what remains is JUST where are they going to go and how far? For now, the near term in weeks, the trend is decisively down and let’s deal with that.
The next stop looks like the supports that coincide with supports of some magnitude for most of the equities and indexes around late January, 2012. Below that the next stops are around those supports made late October, 2011. But let’s stick with the 200 day MA’s and supports made this year.
Starting with the DOW is just above its 200 day MA (12476) also a minor support, made around January 11, 2012. To me a 40+ drop in the DOW to reach this mark is child’s play and could easily happen tomorrow, even today. Just as easily the DOW could bounce off this boundary and continue the march back up. However, I think we see a penetration and falling further below that demarcation line to 12200 area. The DOW as of late has been a difficult index to follow.
Let’s move to the SP500 whose 200 day MA (1314) has already been ‘touched’ today when the 500 dropped to 1311 making a dead cat bounce back to 1314. Staying above it 200 day is a good bullish thing, but will it last? The support is around the 1280 area and that is of moderate strength happening around the first of November 2011. I believe that will be the test area to watch.
The Russell 2000 has already sailed below its 200 day MA and is about to enter its support at the 750 area formed about the same time of October / November 2011. This is definitely not a good sign. The $RUT has been leading the market decline since late March of this year and needs to reverse course if we ever expect to see the markets rise again. So we will watch $RUT carefully for any positive signs.
The SPY, often a favorite indicator of developing trends is also sitting on its 200 day MA (131.59). Literally, within pennies bouncing up and below this demarcation as I type. The next support of any merit is at 128 and SPY has a long way to go in reaching this milestone and suspect it be one of the last of the longs to reach it. By then it might be too late to be of any help. So let’s put SPY to one side.
QQQ is still very bullish in that it is about 1.40 points above its 200 day MA at 60.97. The next ‘major’ support starts at 58.90. Not an impossible feat to descend that far, but would certainly serve notice to the bulls that they are in trouble. So I would watch QQQ for further decent.
So far there have been no black crosses of the 50 day MA crossing down over the 100 day MA, but in all the mentioned indexes above the 20 has crossed the 50 and the 50 has a negative bias appearing to cross in the next 60 days. The Russell 2000 is the closest in where a crossing is evident and could happen in 30 days.
Below is some of the European news today that helps solidify my thoughts of a negative market future. What has to happen is for the markets to ‘bounce’ off the 200 day MA’s or the supports mentioned above for the market to close this ‘correction’.
—There are protests in Frankfurt today, with the banners below calling for a rejection of the EU fiscal agreement. A loose collection of protesters from different groups have formed a “blockupy” camp that aims to bring Frankfurt’s banking district to a standstill.
—Bankia is being put through the wringer today, but there could be worse news for Spain’s banking sector this evening. There are reports that rating agency Moody’s is poised to downgrade up to 21 Spanish banks at 7pm London time.
—Bankia’s chairman, Jose Ignacio Goirigolzarri, has said that depositors can remain “absolutely calm” and safe in the knowledge that their cash is safe. And Bankia’s share price comes back another couple of percent, now down only 11.3pc
—It seems that when Fernando Jiménez Latorre speaks on Bankia, people listen. It’s been a volatile day for the lender’s shares, but since Spain’s economy secretary denied reports of a run on the bank the share price has pared its losses. It’s still down 12.3pc on the day, so hardly a great performance, but certainly progress from its -29pc low this morning.
—It’s not just Bankia that’s having a bad week: Italian bank shares are also plunging on growing worries over the debt crisis.
UniCredit dropped 7.09pc, Banca Monte dei Paschi di Siena lost 6.89pc and Intesa Sanpaolo was down 4.32pc.
—The turmoil is having an effect on the currency markets: the euro’s at its lowest level against the US dollar since January, and each one will currently buy you just $1.2678.
And German ten-year bond yields have sunk all the way to 1.423pc as investors seek somewhere safe to stow their cash, while Spanish ten-year yields are at 6.321pc after this morning’s disappointing auction.
To contact me with suggestions or deserved praise:
Written by Gary