Overnight we heard from Moody’s when they decided to join in and confirm the potential downgrades of many Eurozone countries, who currently have AAA ratings. The potential downgrade coming after S&P 500 first made that announcement late last week. Now that we have two major rating agencies on board with potential downgrades, the market is more jittery about it as an actual downgrade would hurt the financial system. The futures were very green last night until that news hit. It was a more than one-hundred point reversal lower. So, although the futures reversed to red they weren’t all that bad. That is, until Intel Corp (INTC) came alone, roughly, thirty minutes before the market opened for trading, and warned about 2012. They lowered everything across the board with the stock initially getting hit for a 9% loss. This pulled the futures down dramatically, especially the tech heavy Nasdaq.
The Dow and S&P 500 went along for the downhill ride in the futures allowing for a very nasty open. The gap down was not met with buyers nor many sellers as volume was quite light all day. The problem was simply that there were no willing buyers looking to step in with the plethora of bad news that hit in such a short period of time. Add in the warnings from Texas Instruments Inc. (TXN), Altera Corp. (ALTR) and DD late last week, and the buyers weren’t about to step in. They did before the Intel warning, but refused to do so today until late in the session when it became apparent to them that critical support at S&P 500 1225 would hold for the day. This gave the market a nice late boost allowing it to finish with a poor day, but at least well off the lows, and a bit further away from that nasty 1225 S&P 500 level the bulls desperately need to defend. We closed at S&P 500 1236, after testing within a couple of points of the breakdown. Not a good day for the bulls, but they held where they had to in the face of some very bad, negative news overnight and this morning. The battle is a clear victory for the bears, but the bulls haven’t lost the war quite yet. Close, but still clinging to life.
Gap, and the 50-day exponential moving average, live on S&P 500 1225. You can, therefore, understand the critical nature of losing 1225. If the bulls were to lose such major support the bulls would be forced to close shop and sell their longs as the bears would be in complete control. Akin to a short squeeze, only in reverse. A long squeeze that could really knock the market down hard and fast. 1195 would be on deck and then it starts to get real nasty. 1195 being the bottom of the gap up. In a strong market you should not lose the top of a gap up and that’s why the 1225 level is important .
Add in the 50-day exponential moving average and you get the idea as to why the bulls need to set up shop at this level and not let it fail exactly the same way the bears perfectly defended 1265 or the trend line breakout area. The bulls tried this level many times only to see it get defended over and over even when it seemed the bears were giving in. We got a bit above 1265 a few times only to see it get sheared off each and every time. The bulls need to play the same game of defend your line in the sand. It’s put up time for the bulls. They’re hanging on by a thread.
If you remember, late last week, the market dealt with three major earnings warnings over a two-day period. E. I. du Pont de Nemours and Company (DD), Altera Corp. (ALTR), and Texas Instruments Inc. (TXN). All were pretty severe warnings, and all looked lost for the bulls. However, all three of them printed bullish reversal sticks, which is what you see in more bullish behaving markets. A lot more forgiveness.
In bear markets, nothing is forgiven. Today it seemed as if the final straw hit the bulls. There was no coming back from the punch delivered by the Intel warning. No bullish reversals, although, at least, Intel finished off the lows. Nothing to get happy about at all, but off the lows is off the lows by two percent. We’ll take it. Not great, but we’ll take it. Was Intel the final punch? It’s hard to say, but we didn’t break down today, so it looks as if the bears need to come up with a bit more bad news, and they may just get that tonic tomorrow. More on that in a bit. The market is so close to breaking down, it really feels as if it’ll take just one more piece of the wrong news to send us reeling lower.
The tonic I was speaking of is our friend, Mr. Bernanke. Our fearless fed leader, who loves to turn on the printing press and leave it running twenty-four hours a day, seven days a week. A constant flow of new cash seems just about right for our fed leader. There is the next fed meeting tomorrow, and the world wants to know what he’s going to do to keep the banks afloat and our country solvent. There are so many problems around the globe that the market seems to be looking to him for some help. Between Europe, and our own debt woes, you can feel the market staring his way, wondering what he’s going to do next. More stimulus seems to be the perfect tonic, although big picture it’s not. Now we’ll get to see what he can deliver. The market is asking for more and wants to hear it from him that it’s going to get whatever it needs. The wrong set of words, or absence of words, could be what the bears are begging for. We shall know all the answers tomorrow midday, so stay tuned for that. For now, the market hangs onto critical support by a thread. It needs good news sooner than later.
Peace,
Jack
