9:00am (EST)
Let’s change those words to Greece, Italy, and Spain…oh my!
The bulls ran into a little trouble yesterday following more worries over Europe’s debt crisis and a higher dollar. The downgrades started on Friday when Greece got its junk bonds lowered and continued into Saturday after Standard & Poor’s said Italy might be getting their rating slashed if they don’t tighten ship. Elsewhere, Spain is in some pain as austerity-related protests broke out after a changing of the guard.
Earnings were light although Krisy Kreme Doughnuts (KKD, $8.05, up $1.65) surged 25% on better-than-expected results. Tech Data (TECD, $46.99, down $6.58) dropped 12% after it missed Wall Street’s earnings bar.
As you can tell, the bulls had few catalysts to build any momentum on and spent all of yesterday’s session holding down support.
The Dow was down nearly 180 points, intraday, before recovering somewhat to end at 12,381, down 130. The index traded to a low of 12,331 and bounced around our 12,350 target before finishing slightly above it. There is further support at 12,200-12,000 and the bulls are getting mighty close to caving in.
If there is any fight left in the bulls, we should see a snap-back rally over the next few days. If not, there could be a new sheriff in town by the weekend named Bear. The Dow closed below its 50-day moving average (MA) for the first time since mid-March.
The S&P 500 fell 16 points to finish at 1,317. The index traded to a low of 1,312 and also penetrated its 50-day MA after seeing red all session long. Our near-term support target is 1,300 but the bulls will need a close above 1,325 to reverse the bears current momentum.
The Nasdaq took the blunt of yesterday’s blows as it got pummeled for 44 points to settle at 2,758. Tech traded to a low of 2,750.64 and held our 2,750 downside target but not by much. The index is also playing with its 50-day MA but is in danger of breaking it 100-day MA which would be another sign of a trend change, or pullback.
While we have painted a bleak picture this morning, we did expect another test to the aforementioned lows but we thought it would happen of Friday with the expiration of May options. This was also the second consecutive week that the market has closed lower on a Friday/ Monday so the “warning” signs are there.
The talking heads and pros were pushing the panic button yesterday and were telling everyone to jump ship but we liked how the market held support. Monday’s action could have been the final clue the market is headed for a pullback but we still aren’t convinced the bulls have thrown in the towel.
The S&P 500 Volatility Index (^VIX, 18.27, up 0.84) also gave us a red flag on the current rally when it tripped 20 yesterday. A rising VIX means a falling market and the 5% pop still has us cautious but the fact that 20 held gave the bulls hope.
We know 50-day MA’s can get “stretched” and yesterday’s action didn’t feel like the bulls were throwing the baby out with the bath water. It looks like there was some nibbling at the lows which means some traders are expecting a bounce, but again, we do see some warning signs that are hard to ignore.
Futures are pointing towards a higher open. Dow futures are up 38 points to 12,400; S&P 500 futures are higher by 5 points to 1,320; Nasdaq futures are showing a gain of 7 points to 2,322. We also have a NEW TRADE we are trying to get into if the price is right. We have set limit prices to see if we can get these options at the open. Subscribers, check the Members Area for the updates.
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