Market Proves to Be Fearless – But Will It Last?

If we glance at the broad equity indices such as the S&P 500 INDEX, RTH and Dow Jones Industrial Average, yesterday’s trading session was fairly uneventful despite a barrage of random news hitting the tape.

Stocks remained relatively sticky so much, in fact, that not even news of Moody’s downgrading Ireland’s debt to to Ba1 outlook negative did much to stocks relatively speaking.  On the other hand, one could say that stocks closed the session at their lows (financials and semiconductors closing notably weak) and defensive stocks again outperformed, as did bonds and even gold and silver rallied.  And while the Ireland downgrade was in the cards, one needs to keep in mind that just two years ago that country was rated AAA by Moody’s.

But these broader “issues” like Italy and the U.S. spending habits including won’t matter until they start to matter. That is to say they do, of course, matter now, but clearly fear hasn’t spread anywhere near where it could be and stocks remain well bid for now.

Is it denial, carelessness, or outright ignorance on the part of investors not to dump all and everything in their portfolios with even the slightest insinuation of risk on the open market?  Whatever it is that is making investors believe for another day, we will be there when things do turn lower and will then try to navigate these waters with the appropriate strategies.  My job as a trader is not to second guess the market or trade a market that isn’t.  My job is to take one step at a time, one day at a time, manage risk, and at the end of the day end up with a little more green in my jeans than the period prior.

Let’s have a look at a few charts shall we.

The Nasdaq 100 has now corrected close to 3% over the past three trading days, which I would classify as a healthy correction and could envision it regaining better footing again soon for another push higher.  As I usually point out in connection with this index, stocks like Apple (NASDAQ: AAPL) acting well is a good sign.

ndx nasdaq 100 index

The next chart to look at is gold again.  I pointed this chart out yesterday and discussed the potential of a break out of the gray zone on the chart.  Yesterday gold then proceeded to do just so and as a next hurdle it has to contest with the highs from the breakout fake out from early May.

gold futures


Next is the chart of the EUR/CHF, that’s the Euro versus the Swiss Franc.  The Euro has fallen in dramatic fashion versus the relatively safe haven Swiss Franc over the past 18 months and over the past days has literally fallen off a cliff.   Why am I pointing this out? This chart reflects much more of the real angst that is happening in the Euro zone right now than what we see in stocks.  We could of course also point out the blowing out of country bond yields from Ireland to Spain to Italy, but what the EUR/CHF cross rate shows is a real flight to safety whereby wealthy European nationals and institutions buy the Swiss Franc.

eurchf euro chart

The big drop in the S&P 500 futures going into yesterday morning was erased by the time the U.S. stock market opened and given the wild flurry of news all day stocks hung tough, certainly not falling nearly as hard as one might have expected.  And that simply gets me back to yesterday’s point; 1300 on the S&P 500 is an important level worth watching as a number of technical crossroads meet there.

As long as 1,300 holds this market should have a little higher to march yet in the near-term.

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