Big Banks Have a Big Impact on the Market
The market declined again - actually it was pounded lower - yesterday. All major U.S. indices were down by more than 2% on the session. And once again, financials, which are heavily exposed to a European debt crisis, took the largest loses. Big U.S. banks were ripped apart: JPMorgan (NYSE: JPM) down 6%, Citi (NYSE: C) down 9% and Bank of America (NYSE: BAC) was down 8 percent.
The bank stocks led the rally, which started last month. But that rally was a result of a European bailout package that would have helped grow the economy, and more importantly, assist in the debt unwind.
Regrettably, that plan, along with the debt deal, has been put on hold. And as a result, the bank stocks have been pummeled.
Although the market looked great a few sessions ago, the deterioration of the European bailout brought sellers right back. And the news also brought fear back to the marketplace.
I still want to trade mostly bullish. But if Europe cannot contain the debt mess, the market is heading lower, possibly all the way back down to the 2011 lows.
Economic data and earnings have improved over the past few months, which may stabilize the market at a higher price. But the European bailout was the big catalyst that got the indices turned around.
The bailout also provided a boost to the euro. And generally speaking when the euro goes up, so do stocks. The euro has rebounded overnight, after it was crushed from Friday, which has helped the indices today. Banks are also up, the Financial SPDR (NYSE: XLF) is up 2.3%.
The bulls will take all the help they can get. Buyers managed to keep the 1220 support zone in place yesterday. But should the euro turn lower, 1197 is a likely stop for SPX. And that decline would happen fast if 1220 fails.
Normally, I would be aggressively taking long positions today, or I already would have taken them yesterday. But with the troubles in Europe, and the fact that the October stock rally was mostly built on the European troubles being fixed, I can't trade with too bullish a bias until more information is revealed.
At the same time, look at the gains (and the potential losses if you're bearish) to be made if a successful plan is announced. Our October was excellent with trade gains of 13%, 9%, 13%, 20%, 14%, 4% and 46%. For more information on how you can achieve those kinds of profits try TradeMaster Daily Stock Alerts.
Today is a fairly big day in economic data. While it's possible we will obtain news from Europe after Merkel, Sarkozy, the IMF and EU officials meet, big news (ADP jobs and FOMC meeting) will be announced in the U.S. this morning and in the afternoon. The ADP jobs number was 110,000, which is better than the expectation of 100,000 and barely lower from a revised 116,000 last month. Additionally, the Fed will reveal its rate decision and maybe tease the market with Quantitative Easing 3 too.
