Financial Leaders Agreed to Agree Yesterday
The market finally declined yesterday. SPX had consolidated near 1250 for six sessions, but the bears were finally able to push the index lower. Volume wasn't heavy, but it rarely is these days. A few monster orders came through near the close (as the bulls were trying to push SPX back to 1250) so we know the bears are still protecting resistance.
I continue to view November 28 as a must hold level for the bulls. As long as SPX can hold the November 28 low near 1160 the bullish trend remains in full force. Quite honestly, if we are dealing with a strong bull rally, 1220 would not be surrendered by buyers until another high is made on SPX.
Proper caution still needs to be taken with each new trade, along with current open trades. While I believe we are headed higher over the next three weeks, the bears have a funny way of changing the tide of the market without any detection.
Yesterday was a rough day on stocks. Our leadership sector, financials, were slammed 3.8% lower. The huge decline is not surprising given the 12% rally over the past six days. But leadership sectors will rarely lead the way up and the way down.
Another leadership group, small caps, were also obliterated yesterday. Again, the decline was not surprising given that small caps had risen 13% over the past week. But I don't like seeing leadership groups lead on the way up and then during the way down.
The EU summit is under way. The EU, along with investors, hopes to come away with a plan of fiscal rules that will include the 17 eurozone countries and perhaps all of the 27 EU members.
The U.K.'s David Cameron shut down any hope of 27 EU members yesterday. And it was the right call. The economic situation in the U.K. is far better than the rest of Europe - as a leader, David Cameron was looking out for his nation's best interest and that was the right thing to do.
Before the summit began, many investors agreed that meetings would be a success if 17 eurozone nations moved forward. As far as I can gather from the BBC, there is no treaty in the works but the 17 members agreed to agree to form a new agreement.
Did you expect a straight answer from a European politician?
To their credit, the summit did accomplish a little more than scheduling another meeting. Financial leaders from 23 countries agreed to work a treaty and additional contributions were also made to the IMF.
While the agreement to agree to an agreement wasn't the most hoped for outcome it most certainly wasn't the worst. The market still needs to cool off from last week's hot rally. But today's agreement to agree on an agreement should provide the indices with stability.
I don't expect a huge day in the market. And I think any pop over 1250 sets SPX up for a big rally next week.
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