You try to find the silver lining in things as often as possible as long as you don’t let it affect adversely when it comes to the truth of things. So the reality is the market isn’t wonderful, but the oscillators on the daily charts are finding their way down without a ridiculous amount of price depreciation. Yes, the S&P 500 isn’t great, and certainly the Nasdaq is lagging, but neither one is at deaths door. They may be soon enough, but they’re not there yet. There’s no guarantee they will be, even though most feel they will get annihilated soon enough. Who can blame people for thinking that way to be honest. However, never write the story until it’s a known. One piece of the right news from Europe and this market would blast higher with all the shorts in currently. On the other hand, this market is one wrong piece of news from falling down very hard.
Europe is in dire shape and on the precipice of defaults all over. It’ll only take the one wrong default to kill their markets, and thus, our markets as well. They already have banks starting to ask for money to survive. This was the type of news that helped bring this market down during the week. There just aren’t enough positives in our back yard to counter the bad news from overseas. So, the week ended with losses everywhere, and with markets remaining oversold on all the 60-minute time frame index charts. That hasn’t happened in a very long time and doesn’t speak well for the markets immediate future. The damage done technically was minimal, but it has set the ball in motion to cause technical from levels not too much lower than from where we closed today. So it’s do or die time for the bulls. To be blunt, it appears they’ll need a miracle to keep things from moving down to the next important levels of support. That’s a victory dance this week for the bears.
As time has moved on, it seems as if folks around the world are losing faith, or hope, in the ability of Europe to get its act together before something bad takes place. The news over the past few weeks has been more in terms of an unhappy conclusion. The world awaits the word from the collective minds of the so-called super committee. Is there a real solution, or is this just a disaster that has no chance of a happy outcome, is what folks are trying to wrap their heads around. To this point no one has come up with any type of solution that would seem to calm the nerves of traders around the world. The response to a drop of bad news that isn’t an unknown is to sell.
For instance, Fitch ratings came out and stated the obvious and that is, if European banks fail so will ours here. The Dow fell 200 points on that statement in one hour just two days ago. When you fall nearly two percent on something as obvious as that, you know folks are more than nervous and fearful. Good news from time to time does bring the markets up some, but that is not what we’re getting too often any more. It’s mostly all bad news as more and more casualties of the potential defaults are taking place. Time is running out on our super committee and the leaders over in Europe. A statement by the super committee is due by next Wednesday. Scary times for everyone.
The world should start to prepare for the next round of the QE program. The moment we see our first official default from Europe that can’t be bailed out, the fed will be likely forced to throw massive amounts of cash at our banks. Our banks will take a severe hit as they hold massive paper in European banks, etc. The losses will be too large for our banks to handle, and will, thus, be forced to have massive liquidity thrown their way in order to simply survive. To stay solvent. Like all QE programs, the job is to make sure our banks survive. The difference this time being that the past two QE programs were put in place in the hope that people in this country would use the cash being made available to the banks to take out loans, etc.
This time it would be given to the banks for their own survival, and not necessarily at all for anyone who wants to take out loans. This program is to keep our country from going into a massive recession, or worse. Hopefully, the cash would keep us in only a run of the mill type recession. The fed will hold off doing another QE program as long as humanly possible as it shows desperation, but in the case of defaults, we are desperate, so he’ll do whatever he needs to for our country. Let’s hope it never comes to this, but the reality of it happening is getting more and more real by the day.
The S&P 500 and Nasdaq have lost their critical 50-day exponential moving averages. The S&P 500 at 1225, and the Nasdaq at 2615. The Nasdaq also lost key support at 2600. A quadruple-bottom breakdown. Not great, of course, but there are many other levels of support not too far underneath due to the massive move up off the 1074 lows. However, make no mistake that it’s not good to lose horizontal support at 2600, such as the Nasdaq did. It’s even worse to lose such an important moving average. Nothing bullish in any of that.
The Dow closed a bit over its 50-day exponential moving average, but that’s hanging on by a hair. Remember, the S&P 500 and Nasdaq are far more important technically than the Dow. The Dow is only thirty stocks, and the S&P 500 is full of those financials, while the Nasdaq is full of froth. Froth needs to lead and not lag. The financials need to get up off the mat and start leading as well. S&P 500 1175 to 1200 has good support. 2520 is good support on the Nasdaq. Unless the Nasdaq and S&P 500 take back those lost 50-day moving averages quickly, it’s likely these index leaders will see those lower support levels in the not too distant future. It’s really do or die time for the bulls. They need good news, and they need it now.
Peace,
Jack
