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The stock market is still facing a number of big picture negatives and because of those negatives, signs of recovery, favorable earnings and even the promise of low rates for an extended period of time won’t be given much credence. In other words, the bears have a “cause” and the positives will likely be discounted, or ignored in the short term. Nothing of significant seems to have changed overnight with the EU seemingly set to let events take their own course and that could result in the next country coming under attack. Favorable confidence readings and the first year over year house price rise in years from a private survey was totally lost in the Euro shuffle. With the added negative sentiment flowing from heated and hateful Congressional testimony, the bear camp clearly has an environment to their favor. Ordinarily we would expect the US equity market to get a lift from the type of statement we expect to see from the FOMC early this afternoon, but in the current environment, the positives are going to have limited or no impact. We suspect that prices are set to work lower early this morning, but if there is the slightly fresh negative from the Euro zone, or the credit rating agencies on the Euro zone problem, the selling could intensify again.
S&P 500: With the European debt crisis showing no sign of coming under control and commodity prices serving to unhinge natural resource and oil sector shares, the S&P would seem to remain vulnerable to more selling pressure. In our book the failure to forge an exhaustion washout and recovery attempt in the action yesterday, suggests that the selling hasn’t run its course yet. We also don’t see the development yet that can effectively truncate or shut off the negative speculation against other EU debt issues. Initial support is seen at 1176.80 but that level clearly won’t hold and that would put the next downside target at the April 8th low of 1171.30.
DOW: After the big range down extension and no recovery effort at all into the close yesterday, the path of least resistance remains down. In looking ahead it would seem like the debt situation is seemingly cemented into a front row seat. Critical support in the June Mini Dow is seen at 10,915 today but we can’t rule out a further decline to 10,875 in the coming trading sessions. To even think about turning the trend away from the downside today would require a close back above up trend channel support line of 10,941 today.
NASDAQ: The June Nasdaq seems to have found some measure of support around the 2000 level, with the bull/bear line today seen at 2002.75 into the close. While the market might see a fleeting bounce off the US Fed’s promise to leave rates low, any bounce off that issue might simply be seen as an opportunity to get short at a slightly higher level on the charts. Keep in mind, the Nasdaq was one of the more overbought markets in the stock index sector in the last COT report. If the 2000 level fails to hold today that would set up the next downside target of 1985.50, which is only the mid April low!
TODAY’S MARKET IDEAS: The EU is leaving its fate with the markets and the markets are registering their disdain for a total lack of budgetary restraint. We would be very surprised to see the sell-off in stocks end today.
