What caused the ES to do a 40 handle plunge after the initial favorable response to the Spanish bailout acceptance?
“The chances are this event will not be a game changer in the big ‘European’ picture and fading will eventually occur as most of the positives were likely built in last week..”
“ …New concerns will likely emerge and Spanish yields will be in focus as will Greek elections. The Spanish bailout will likely strengthen the hand of the anti- bailout Greek parties..”
Sure enough, the caution/ details/implications listed here into the trading day were the same ones market caught on to as the day progressed. The Spanish yields were the clue to the markets collapse. Instead of keeping lows, they accelerated dramatically to close at 6.5% showcasing confidence fell not rose on Spain’s acceptance (peripheral Italy followed as is usually the case as worries mount of who will be next). Simply, markets took their cue from the sov’ bonds action. Also not helping was the fact the assistance was not directly to Spain banks, but through FROB (really the sovereign) with little in the way of conditions attached. In all, Spain’s debt will rise by ~100bln. The hope was this wouldn’t happen as some rumors (skip balance sheet) had it last week. (reason for big rally >2% day last week), “The story today was a compromise to bypass Spain’s balance sheet”)..last week. As far as the Greek angle noted, the potential boost to the Syriza party was gaining traction as the day wore on.
Although the weekend rip higher and surrender was driven mostly by ES/ ETF, single stocks eventually got caught up in the downdraft. Most stocks/ETF’s put in outside reversal days on the charts due to the big range days, ie financials came off 5-7% from highs.
The technical resistance noted at 1335 held ground and now market finds itself at a support level ~1309-1300. Marginally closed under 20MA and below 1309 (down trendline). Market should remain in this band as it becomes more tentaive before Greek elections and the busy calendar week ahead.
Article originally appeared on Your Personal Trader (http://www.yourpersonaltrader.com/).
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