The eurozone headlines dominated the U.S. markets again yesterday. Spain was the center of attention as bank withdrawals increased and corporate deposits fell to the lowest levels since the debt crisis began. The Spanish 10-year bond rose to 6.669%, a rate that cannot be sustained. And eurozone economic sentiment fell more than expected in April.
The yield on Germany’s two-year bond fell to 0.002%, and the yield on the U.S. 10-year note dropped to a record low of 1.6%. Gold rose 1% despite a rise in the U.S. dollar as the investment world scrambled to safety.
Despite the sharp moves lower yesterday, the basic chart patterns remain unchanged. The Dow, S&P 500 and Nasdaq are in near- and intermediate-term pullbacks. But the long-term bull market is still intact.
But foreign markets look quite different. France’s CAC 40 is representative of Europe’s bourses with the exception of Germany’s DAX, which looks much like the Dow chart.
Note the breakdown through the CAC’s major trendline. This would not be so bad if there was more support at the left side of the chart. But prices have eaten into the support, while the Relative Strength Index (RSI) is in neutral territory and the 50-day moving average is rolling over and threatening to cross through the 200-day signaling a “death cross.”
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Meanwhile, the flight to the U.S. dollar continues. The dollar was so strong yesterday that both it and gold moved in tandem. Usually if the dollar is strong, then gold falls.
Conclusion: As noted there was no real technical significance to yesterday’s decline in the U.S. markets, and so we will stick with our strategy of selling into rallies.
The benchmark indices have broken down technically, putting the near- to intermediate-term market trends sideways. But clear support rests at the following zones: S&P 500 1,293 to 1,264; Dow 12,100 to 12,300; and Nasdaq 2,737 to 2,775. Resistance for each is: S&P 500 1,340; Dow 12,716; and Nasdaq 2,900.
The bull market is intact. However, foreign markets are being pummeled, especially the southern European markets. Even the French CAC 40 is close to confirming a bear market.
If our economy in relation to the rest of the world remains strong, we could be the beneficiary of an inflow of funds. But risk is still high, and patience is required since the chances are strong that we will be able to buy stocks at even lower prices.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
