How Much Does Italy Really Matter?
The market took a pause, finally, and declined roughly a percent yesterday. At the open, the indices gapped down by more than 2%, but a last hour surge by buyers recouped a large portion of those loses.
Volume was below average. And the hardest hit areas were financials (that's why we own ProShares UltraShort Financials ETF (NYSE:SKF)) energy and industrials.
The indices were on a five day rally, and it was common to see a pull back. And despite the big morning drop from the market, no support levels were lost. The bulls are still very much in charge of this market. But I continue to doubt 1250 can be won back easily.
The bulls will have help today, should they decide to resume their journey back to 1250. Although most headlines around the globe are bearish, investors do not seem to care.
The Asian indices opened lower, but many finished the day with gains. Europe also has gains this morning despite another downgrade, this time to Italy, and a record low German consumer confidence level.
But no one trusts Standard and Poor's, so another downgrade by them, especially about the already widely known financial misery of Italy, was viewed as spilt milk. And consumer confidence numbers are every bit as much contrarian as they are leading, so a big negative number isn't a big deal either.
While the market is poised to push higher, I'm not brimming with confidence that its move is sustainable. The TradeMaster portfolio was stopped out of two positions yesterday, one of which was SKF, which was our only bearish trade.
I may look to add SKF back today because my stance hasn't changed - if the market is going to top-out, financials should sink the most. And if the indices continue higher from here, we still have four open long positions poised to profit from that bullish development.
The bulls lost two key areas of long term support in a very short time last month. I think we are in the middle innings of a bear trend. In the near term, let's watch price action near 1197 and 1250 closely.
I do not think that buyers will regain 1250, and we should be looking to close longs, or initiate shorts in that area. Additionally, I think the door is open for the bears to break our long term support zone and move the market all the way down to 1050 at some point later this year. The bulls must hold 1175.
