Courtesy of Scott Martindale, Sabrient Systems and Gradient Analytics
During the month of May, the Dow Industrials managed only five positive days, but June has offered up some recovery so far. Despite the persistently negative news we are inundated with each day–creating real trepidation among investors–there are actually a lot of promising signs here in the U.S., and the technical picture seems to have entered a holding pattern as investors await signs of improving stability elsewhere.
To that end, European leaders launched a $125 billion bailout of Spanish banks. Obviously, bond rates in the latest hot spots like Spain and Italy need to come down, preferably below 6%, to achieve some stability. After all, Italy carries a ton of debt–only Japan and the U.S. carry a bigger load. Also, the ECB endorsed a plan for a banking union and a bank deposit guarantee program to calm investor fears about the safety of their deposits. We will likely witness even more programs rolling out as they seek to calm markets by demonstrating resolve.
If they are successful, given the mass exodus of equity investors from European stocks, we might be seeing a major buying opportunity forming in Europe. But let’s take one step at a time. For the moment, the big event is Greece’s new election this Sunday. At this point, anything is possible as both the far right and far left appear to have roughly equal support among the electorate.
SPY closed Wednesday at 132.07. It has entered a holding pattern for the past week, awaiting a catalyst to either break out or break down. The prior bear flag pattern shown was initially confirmed, but the 200-day simple moving average provided immediate support, and now SPY is churning smack dab between its 100-day and 200-day SMAs and between its upper and lower Bollinger Bands. RSI, MACD, and Slow Stochastic are giving few clues, even though last week they diverged from the price breakdown by forming higher lows.
A longer-term chart (over one year) shows that important support sits near 125. A breakdown below the 200-day SMA and the 125 level would not bode well. But bulls seem to be willing to put up a fight.
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 38 bps, holding the same…
