Courtesy of Scott Martindale, Sabrient Systems and Gradient Analytics
Last week, the spotlight of worry was back on Greece’s solvency. This week it is Spain’s turn again to spook us. Greece, Spain, and Italy are in economic disarray, and the prospect of growing their way out of trouble appears unlikely given the recessionary forces. Even emerging market darlings like Brazil, China, and India are struggling. Although U.S. companies have been hanging in there–buoyed by a supportive Fed–with overall improving earnings reports, overseas markets are rife with uncertainty and the fear of spreading global contagion.
The EU summit resulted in little more than the usual–acknowledgment that something’s gotta change, but no consensus on what to do. The drawbacks to the Eurozone monetary union concept of governing by consensus are being exposed.
Thus, money continues to pour into the safety of U.S. Treasuries. The 10-year yield now sits at a 60-year low. The prospect of European bank recapitalizations gave U.S. stocks an excuse to bounce on Tuesday, but Wednesday gave it all back. The euro set a near two-year low of less than $1.24 this week. Relative strength in the USD serves as a ball-and-chain on U.S. stock prices.
In a nutshell, investors in the U.S. and abroad have become paralyzed into a safety-first mentality. And in the words of Forrest Gump, that’s all I have to say about that.
On Wednesday, Energy stocks got creamed by 3.0%. Financials took a 2.2% hit. Nevertheless, U.S. equities have a lot going for them. This week’s Sabrient SectorCast ETF rankings are only slightly less risk-oriented than last week’s. Stocks from the “riskier” sectors bucking the selling trend on Wednesday included financial SLM Corp (SLM), technology Apple Inc. (AAPL), and materials stock Monsanto (MON).
SPY closed Wednesday at 131.76. Volume has been only moderate. Price might be forming a bear flag pattern as shown in the chart. Support at 130, followed by the 200-day moving average just below, are being tested again. After a bounce attempt, RSI, MACD, and Slow Stochastic all appear to be weakening.
The TED spread (indicator of credit risk in the general economy, measuring the difference between the 3-month T-bill and 3-month LIBOR interest rates) closed Wednesday at 40 bps. The VIX (CBOE Market Volatility Index–a.k.a. “fear gauge”) closed Wednesday at 24.14, as it continues to rise while stocks fall. Still, last fall in the heat…
