Any surprise to see fresh European complications emerge and set the market tone?. No, but yes when it’s the ‘Dutch’ turning the trick after failing to reach a budget deal. Late last week, noted, “Unfortunately, besides Spain woes likely to continue, market is beginning to focus on upcoming elections (France, Greece). Well, it seems the Dutch jumped the gun and put itself in the middle of the political uncertainty landscape. No doubt the downfall of an ally ‘AAA’ government is significant, but to draw U.S market conclusions is too early. Today’s fear is Germany will lose 2 ‘debt crisis’ leader allies in France/ Netherlands and things will unravel. Also, EU PMI’s showed contraction picked up in April and compounds the fiscal budget/ GDP picture. Although billions of market cap were wiped out in Europe (~3% DJ Euro’ Comp), SP managed to pare losses off April lows and close at SP1366.
Of course, “China who?”, flash PMI gets overlooked. Although still under 50, inside there was broad improvement.( ie.new and export orders)
Instead of a bad close or volume intraday ramp down through supports (wedges, flags), we got a gap down, which allows for a gap fill trade. As for intraday, the gap forced some to cover and lifted market well off lows. If the wedges, flags were broken intraday, shorts would have pressed and more longs would have exited. Instead, today was slow and not panicky, Shadowlist components held up well, (Financials, GS/JPM were flat decoupling from Euro financials and quite a few growth retailers/ consumers did okay, KORS LULU PVH VFC)
All in, we’ve probably seen nothing yet as far as volatility this week.