Ahead of the open, (22-11)
Monday, November 21, 2011 at 05:16PM As pointed out last week, a sea of change in investor tolerance was evident to Europe and its governing bodies/ countries. Today, the co-chairs of the US congress ( ‘Supercommittee’ ) failure showed inaction is still rampant on this side of the Atlantic (deadline 23rd, but needed days to ‘score’ any plan after making it public, so threw in towel today ). Although, the consensus view was for the committee to fail and not strike a deal, this was still all the chatter today and many debated that this was responsible for a good portion of the market drop. Of course, at the end, there is some disappointment shown in the US market (it leaves unanswered questions to extending payroll tax/ unemployment benefits for ’12), but it doesn’t explain today’s slaughter across the board in European markets. Simply for this reason, it’s not the ‘expected’ failure in U.S, but a continuation of Europe and the sovereign crisis. Interestingly, today’s beaten down markets weren’t caused by ‘bad’ news as last week from Europe, but a lack of news from Europe, which again proves investor tolerance is fading. At least, no news should have been good news!.
Also, entering into equation and more of a catalyst vs. ‘Supercommittee” was the news out of Asia overnight to help explain the slide, particularly the beatings in higher beta coals WLT, steels X, copper FCX stocks, machinery CAT JOYG, engines CMI, resources were down 6% in Europe. China related stocks incl, WYNN LVS continued to dump.
- Finance in charge said, “ …that the world will head into a long-term recession and that China needed to reform in order to cope..”
- China seeing investors pull money out, monthly outflow of foreign currency was first since Oct’07
- Shanghai home sales down nearly 50% yoy this month
- Japan exports fell sharply indicated softer demand was showing in the global economy.
In all, what’s important short term is the technical picture to come out of today. As ugly as its seemed last 3-4 days, there may be some short term 'holiday' hope. Most expected SP1200 to be support, (cited here a break of 1230-1220 would be last support before drop below 1200).
Considering we got that on a fast drop to a low 1183, nearly ~55pts from ~1236 triangle low in just 3-4 days, the market may find some stabilization SP1183-1185 (50% retrace) and therefore it may be time for …”possible ‘positive bias’ catalysts to coincide with seasonality for a bounce”. Resistance would be in the 1215’ish area.