The Bears Strike a Deadly Blow
The market continued its decline yesterday but the losses were minimal compared to Monday. Volume picked up slightly as the bulls were forced to defend 1220, which they did with gusto.
The indices tried to rally in the morning. And a few of the indices gapped higher too. But the selling pressure was too great and SPX hit 1250 and was slammed lower by the recently strong bears.
Additionally, the euro crashed again yesterday. After a brief period of stabilization, the euro formed a bear flag then broke decisively to the downside.
The euro fell by 1.1% during the session, which comes in addition to the 1.5% that the currency declined on Monday. Going into Tuesday I expected $1.31 support would hold the euro up this week, but after the breach yesterday it looks like the currency will want to test the $1.29 major support zone.
Amazingly, the sharp decline in the euro did not have a huge impact on the market yesterday. Generally speaking, the market moves in the same direction as the euro but with greater magnitude.
The fall in the euro, which corresponds to a rise in the dollar, is a wet blanket for a fire the bulls tried to light last week. So long as the weakness in the euro persists, SPX is likely to break 1220 and hit 1197.
In addition to the weakness in the euro, our leadership groups were slammed hard yesterday. Over the past few months, I've looked to the big banks for leadership - they got us bullish in October then cautious in November. On Tuesday, the big banks were dinged for a 1.4% decline, which brings the weekly fall to 3.7%.
The other leadership sectors, technology (down 1.1%) and small caps (down 2.1%), had an unpleasant session too. The persistent decline in our leading groups is bearish and has kept me from adding new positions during the pullback this week.
Although we did book a 10% gain from Netflix (NASDAQ: NFLX) yesterday and still have a gain in our only remaining position Mitek Systems (NASDAQ:MITK).
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I like to stay optimistic and still believe the bulls have another rally ahead of them. But the leadership groups really need to see support today and SPX also needs to defend 1220.
Beginning December 19th, and going on for the period of time up to the 11th of January, you will be getting trading advice from me as well as my colleagues.
I will be traveling in South America during that time and will not be accessible for various points of that trip. Fortunately for you, Wyatt Investment Research has many expert analysts ready to provide you with excellent market research.
As part of my ongoing commitment to TradeMaster Daily Stock Alerts readers I asked an expert cast to provide market insight while I am away for the next few weeks.
I will be traveling first to Argentina (12/19 to 12/24). From there I head north to Cusco (12/25 to 12/31). And my final destination is Ecuador where I will be in Guayaquil, Quito and Baltra (1/1 to 1/12).
My best wishes go out to all of you this holiday season and I promise to chime in when I can about my thoughts on the market, but I don't know if the Incas or giant tortoises in the Galapagos had the foresight to install wireless Internet.
Gold continues to see the heavy decline I expected. Where do you think gold is headed? Please drop me a line sometime today at marketforecast@wyattresearch.com.
