We want to lead with acknowledgment of the tragic deaths of the NAVY Seal unit in Afghanistan. Thoughts and prayers are with their families and loved ones.
We reported earlier on the major sell-off over the weekend in some Middle East markets, with the last quote as of this writing for the Tel Aviv Index at -7.0%. The Globex S&P futures have now opened with a gap down at the open of about 30 points to 1167.25 (and gyrating wildly). The 1167 level was about where Friday’s lows were put in.
Aside from the obvious anxiety over the Asian markets this evening and the U.S. futures due to the S&P downgrade, there continues to be a lot of talk and speculation over ECB emergency actions today (note: with the developments in such a state of flux, apologies in advance if this post becomes outdated by the latest news flash).
According to Bloomberg:
The European Central Bank said it will “actively implement” its bond-purchase program, signaling it is ready to start buying Italian and Spanish securities to counter the sovereign debt crisis.
In a statement issued in the name of President Jean-Claude Trichet after an emergency teleconference meeting of policy makers, the Frankfurt-based ECB welcomed Italy and Spain’s efforts to reduce their budget deficits. It also called on all euro-area governments to follow through on the measures agreed at a July 21 summit, including allowing the European Financial Stability Facility to purchase bonds on the secondary market.
“Europe is in an incredibly dangerous situation,” Nick Kounis, head of macroeconomic research at ABN Amro in Amsterdam. “The risk is that the U.S. downgrade is just going to unsettle everyone even more. It’s a unique situation in that we are essentially in the heart of a European sovereign debt crisis, which has reached its meltdown phase.”
I also want to comment a bit on some key levels to aware of, although the technical action last week blew through key support levels without a second thought. (How often do we see three “centennial” numbers in the S&P in one week? …1300’s, 1200’s, 1100’s. I know more than one pretty good trader who tried to buy at a key support area and got hammered, eventually going to the sidelines).
One pattern being discussed is the resolution of a longer-term "Head and Shoulders" pattern in the S&P, with the 1170 "target" being met last week.
Other key levels to be aware of, in round numbers, include:
- 1285-support for much of the latest rally
- 1250-60- the open of the year and the Japan mini-crash lows
- 1225- a key upside break area leading to the December 2010-May 2011 rally, which will now act as resistance
- 1200- a key pivot area for much of November 2010
- 1175- the "Head and Shoulders" target
- 1150- a key resistance area Sept.-Oct. 2010
- 1125-1130- resistance for much of last Summer, breaking with the "QE2 rally"
- 1100- a very big pivot area for almost a year, 10/09-10/10 (with a core range of 1030-1175)
- 1050-60- the infamous Flash Crash lows of May 2010
- 1000-July 2010 lows
If the market decides to go into full bear "crash" mode, I think it will be instructive to keep in mind that "Flash Crash" range of 1050-1170.
So, with "Conventional Wisdom" being correct in saying we will get a significant downdraft in the U.S. futures this evening, what will next week bring? Many market "experts" were greatly fooled last week when the reaction to the "debt ceiling" final vote did not lead to a huge relief rally, but rather the beginnings of a major sell-off. Did the smart money quickly realize that the "deal", or lack thereof, was merely going to be seen as “kicking the can down the road” and lead to the S&P downgrade? Was it “buy the rumor on the vote, sell the news? Will this week fool many experts again, with a “sell the rumor, buy the news” ironic “twist” on the downgrade? Are oversold indicators “screaming buy” or is one absolutely crazy to fight the trend and catch the proverbial “falling knife”. Is the market truly buying into recession fears, or simply going into protest mode to try and force some form of QE3? Or will the latest news item out of Europe absolutely overshadow everything else?
There was a lot of great interactive commentary by subscribers to the S&P downgrade post on Saturday and we know there are a lot of smart, avid chart-watchers out there. Tell us what you think in the comments section below… we would be very interested in your thoughts on where YOU think the market is going next, or at least some possible scenarios.
S&P 500 - Last 5 Years
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The Underground Trader posts are authored by a long-time friend and colleague who specializes in trading futures and options. The Underground Trader is a very close watcher of the indices and is a market junkie who cruises message boards, trading groups, news feeds and opinion sites for any edge he can get. Do not bet the ranch on any of his comments but they are usually interesting and definitely food for thought.
Comments
I won't be surprised to see 900-1000; lower possible.
thanks BP..record profits yes, but a lot of that has been driven by artificially low interest rates and the weakness in the dollar, which has been of great benefit to large U.S. multinationals personally, and I am on record as having written this about a dozen times, I could not understand how the market was so relatively high with all the fundamental problems in the economy like housing, employment, lack of credit for small businesses, weak consumer spending, etc.
How many of us are now thinking that the old admonition, "sell in May and go away" was a good idea? Tomorrow is going to be a very interesting day,, particularly for the smart money.
So far this is just a correction in a bull market cycle. The S&P downgrade was already expected and probably priced into the market. Sentiment has turned extremely bearish to the point where no one wants to own stocks. Market action seems to indicate a worldwide financial collapse which is unlikely to happen. If Europe can get it's act together and the U.S. comes out with some decent economic data the market could be in for an upside surprise.
Can I play too? One thing I've learned over the years is the market rarely acts the way the masses expect. So, if we "whoosh" lower Monday morning, I wouldn't be surprised to see a bounce. After all, we've had an 11%+ correction. But don't forget that waterfall declines generally see a retest of the lows! (And IMO, the state of the economy will be the key once all the volatility settles down). P.S. Thanks for all the great comments - keep 'em coming!
fyi, for those who get it in their local area, Bloomberg TV airing a "downgrade special" program with the "Surveillance Team" as I write this...started 8 pm EST
but geez, yankees v. red sox on ESPN I keep wondering when Goldman is going to come off their 1450 year-end S&P call..or maybe they won't, expecting further "stimulus" and a Fall rally...they did recently downgrade japan's gdp estimates
If you price the stock market in gold, it has almost taken out the March 2009 lows. The rally of the last two and a half years was a dollar weakness illusion. imho.
The market no longer thinks the political class on either side of the Atlantic is credible. The selling will continue for some time yet, and likley go beyond the "20% correction" which lies at 1096. It will take time for confidence to be restored.
Reminds me of the great philosophical question: "What do you get when you crossbreed an elephant with a rhinoceros?" Answer: "Eliphino!""
Thanks, no know what to think. Companies making record profits market goes in tank. Sounds sort rigged to me