Google translate for: Warning, Possible Danger Ahead in Italian.
Written by Rich B. Meier
TopEquityNews.com
ATTENTION: We interrupt our normally scheduled insider report to bring you an update on stock market conditions.
On Tuesday, the market cheered Italy’s Silvio Berlusconi getting a swift, un-ceremonial avvio fuori dalla porta (boot out the door). Yesterday, world markets gulped and wondered with a thump, what and who is next
At the same time, panic is starting to set into the Italian bond market, resulting in liquidity drying up. I read a European bond guy saying that not long ago, “investors had little problem buying or selling EUR500 million of Italian bonds at a clip, now it’s difficult to trade more than EUR50 million.” Mama Mia!
This is the same sort of action the subprime market experienced at the birth of the 2008 financial crisis – nobody wanted the damn things, prices crashed and the rest is terrible history.
It was said that AIG, Citibank, Morgan Stanley… were too big to fail. Let it be said here and now, Italy is too big to bail. This doesn’t guarantee a rerun of 2008’s crash. In fact, the last few years the stock market has played this bad Euro debt “she loves, she loves me not”, game on a smaller scale with Greece.
(Just wait to see what happens when the super duper debt committee in the US Congress races towards its deadline with no deal in sight.)
So what can investors expect
First and foremost, these day-to-day volatile swings between near euphoria and outright anxiety are most likely here to stay for a while.
Secondly, the relationship between the Euro and the Dollar will continue to be a key driver for stock prices. For quite a while now, the greenback and US equities have had an inverse relationship: dollar up = stocks down and flipped around.
Finally, in a news driven environment, investors better be well aware of the technical support and resistance levels on stock and index charts. Buying and selling will cluster at these points, and should the guardrails give way – on the top or the bottom – you better have a plan in place on what to do next.
Or – you can just come to Top Equity News and we’ll do our best to guide you through the turbulent markets without taking on too much water.
From our vantage point, the NASDAQ chart shows the potential for more downside, possibly to its 50 day-moving-average of 2575ish in the short-term. If it moves much lower than that, the index will have moved out of its ascending channel and should find another backstop at 2550. Next up is 2450, and then 2011 lows are likely to get revisited if 2575-2550 or 2450 doesn’t spur a rebound.
Adding to my concern is a bearish MACD cross-under. This technical pattern has been unkind to the index in the past year. Four of the six occurrences saw the NASDAQ drop immediately – and sometimes swiftly – following the sell signal. (By the way – I use the NASDAQ as the index of choice as it tends to be the leader)
Of course, no technical signal is foolproof. If rumors swirl for the umpteenth time that China is going to ride in on a white horse and save Europe, stocks could explode on a moment’s notice.
All this info is well and good, but how do you protect yourself from another potential selling blitz
As we mentioned up top, the dollar tends to go up when stocks get cracked. You might want to add some PowerShares DB US Dollar Index Bullish (UUP) to your portfolio’s mix. It’s never going to make you rich, and the FED is eating way at the dollar’s value every day, but it could make for a nice insurance policy if the PIIGS get slaughtered.
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