As yields on Italian 10 year debt surged to new highs around 6.65% our markets were clearly affected, coming under selling pressure in the morning part of the session. However, once European stock and bond markets closed, our markets seemed to find their footing. Bottoming out during lunch time, the markets then surged higher as the Euro came rallied and the U.S. dollar came off of its highs.
The market seems to be having an easier time moving higher than it does moving lower at the moment. This likely has alot to do with the fact, that as we pointed out about a week ago, there’s a ton of money on the sidelines to buy dips. Today was no exception, the markets could’ve easily tumbled on worries that a debt crisis is about to erupt in Italy. Instead though, the S&P500 managed to hold firm above Friday’s low of 1,238, bottoming at 1,240 before reversing to close green at 1,261. Today’s low in SPX gives us more conviction that we have our stop loss (recommended using Friday’s 1,238 as a stop loss) at the correct place.
Also important today was the VIX closing below the psychology important 30 level for the first time this month. The rally high off last weeks low (1,263 on SPX) now serves as the key breakout point that the bulls need to muscle SPX over in order to test recent highs. Continue to watch the yield on Italy’s 10 year bond as a move north of 6.7% could spell trouble for the markets. If it can retrace back towards 6.5% we would expect the markets to push higher. You can follow the yield of the bond here.
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