That loud cracking noise you heard today was the markets breaking down to their lowest closing levels of the year. The heavy breathing? That was the last of the bulls as they succumbed to key technical levels after trying to hold them for the last 30-60 days. In the end though it is the bears who were successful in getting the S&P500 to break below key channel support at 1,120 and test 1,100. Failing to hold, SPX closed at its lowest level in over a year, at 1,099 . Bearish technicals across global markets & the European debt crisis continue to outweigh any perceived positive economic news out of the U.S. and SPX has now entered an official bear makert.
For weeks many have been wondering whether or not the market is pricing in a recession. Given the recent economic data though (which has been soft but not coming in at levels associated with recessions) and consequent price action, we wonder if this is the right interpretation? To us it seems like the market is pricing in the expectation of continuing debt crisis, not just in Greece, but soon all through out Europe and other high debt/GDP nations (like the U.S.A). What’s more, the market doesn’t seem to have any confidence in the policy solutions that have been offered, and doesn’t seem to think policy makers are going to come up with better ones anytime soon.
Take today for instance, the ISM manufacturing data came in above 50, a reading associated with economic growth (albeit slow)… after rallying to 1,138 on the news, SPX came under heavy selling pressure. In other words, the pop in SPX was used by many as an opportunity to get out or get short. The release of that data simply delayed the inevitable breakdown that the bears seemed determined to force today. When bad news is getting sold, and seemingly good news is getting sold, it makes for an extremely bearish environment.
With today’s close below 1,100 the S&P500 has now entered an official bear market. Other bad omens we saw today came in the form of a 5% by the Russell 2000. All eyes should be on 580 on the Russell, as that was its 2010 low. A break below 580 could really send the bulls running for the hills and drag the overall markets yet even lower. The VIX also manged to close above 45, setting the stage for a breakout above the key psychological 50 level. Financials (XLF), consumer discretionary (XLY), energy (XLE), materials (XLB), and the euro all brokedown today as well. To make matters worse, the dollar broke out above 79 and has its sights set on a move above 80.
Did you know that you can watch Stockhaven trade live in real time?
Learn how to daytrade by watching someone else trade! Watchhimtrade.com is the only site that lets you look over the shoulder of a professional daytrader.
Watch this video now where he shows you how it’s possible to make 100% in just 5 minutes!