Chaos Remains in Europe
The market declined modestly on Friday, but the bulls were able to fight back toward the end of the day. On Friday morning the indices raced lower following confusion in Europe, a rally in the dollar and mild employment growth. But the indices quickly stabilized after the open, and the bears once again could not inflict much damage.
Last week was a menace, in every sense of the word. And it if you think the direction of the market seemed manipulated, I'd agree.
In October, the indices rallied nicely following good earnings data, solid economic results and bailout rumors (confirmation to come later) in Europe. All three played a role in the rally, but the European bailout was probably the biggest excuse.
Then last week, out of left field, Greece "decides" it may not want a bailout. And that it also may abandon the euro. Not only is that crazy, an announcement like that is also premeditated.
Greece nearly declared financial war on Europe. And maybe I'm ignorant, but I refuse to believe political moves that substantial are dreamed up the afternoon before over a pint of bourbon.
Someone or some country, or both, had to know about the backlash from Greece prior to the official announcement.
Either way, the market, and the euro, tanked following the news. And bank stocks were sent decisively lower too. But by Tuesday the indices had stabilized despite no real news from Europe.
Then by midweek, Greece decided that "it would suck it up" and take the free money. If the EU wants to pay off 50% of my home mortgage and all I have to do is make mild spending adjustments in exchange please contact with me through email this morning.
After the resolution, the market should have rallied. But it didn't. Stocks only went slightly higher. And chaotically, the euro, which had rallied 7% on bailout rumors finished last week down 2.7%. Also, toss into that mix a weekend rumor of the possible resignation of Italian prime minister and a big miss in German production numbers this morning (back to back months of industrial production contraction). The result of all this confusion should make for another wild week of trading.
I'm going to do my best to ignore the political ramifications of recent stories. The best way to trade around these day to day shocks is to focus on the charts. And in looking at SPX today, one thing is clear to me: the break out past 1250 didn't hold last week and now the index is finding resistance at that level. The bulls need to take back 1250 today (that means close SPX higher) or tomorrow at the latest. Unless the buyers can manage that task, SPX will have hit 1220 again by Wednesday morning and 1197 within a week.
The month of October was the best month ever for TradeMaster Daily Stock Alerts subscribers, and I recently added some bearish exposure last week - click here to find out more about our record breaking month and what bearish trades I have open.
