Daily Market Report: S&P 500 Needs To Hold Important Support Level

Bad news in the European banking and financial services sector this morning has caused a reversal from the enthusiasm that had been building overnight. At 8:05am ET today (Wednesday), there were reports that Deutsche Bank (DB), HSBC (HBC) and Man Financial Group were ailing.
http://finance.yahoo.com/news/Man-Group-assets-fall-to-sue-rb-14056577.html
http://www.reuters.com/article/marketsNews/idCALE48594820090114?rpc=44

Yesterday, in listless trading, the DJIA (^DJI) was down a bit, and the S&P (^GSPC) and NASDAQ (^IXIC) were up a bit. The DJIA (-25.41 -0.30% to 8448.56), S&P 500 (+1.53 +0.18% to 871.79) and NASDAQ Composite (+7.67 +0.50% to 1546.46) all were quiet on low volume.

The $USD strengthened further to 84.20 at the close, down a tad during the day. This morning the $USD was up to 85.45 and the Euro at 131.58, down from yesterday’s close of 131.84. The Pound closed down yesterday -2.01% at 145.08.

Europe is in trouble with the expectations that the European Central Bank and the Bank of England are going to have to produce their own version of TARP in order to save the biggest banks there. That is freezing the interest in risk-taking among traders and weakening trading volumes. Frankly, the S&P 850 support is what everybody is watching.

Up until this week, it was clear that traders were ignoring bad news and trading prices were holding up, slightly above support. With the problems in these European-based banks now, that situation has changed.

Earlier this morning (8:05am ET), the European bourses were significantly lower: French CAC -1.71%; German DAX -1.78%; and UK FTSE -2.11%. By 9:15am, the numbers had worsened to: French CAC -3.08%; German DAX -3.55%; and UK FTSE -4.19%. It’s been a tough week for European equities and the Euro and Pound.

In Asia-Pacific equity markets today, Tokyo (+0.29% to 8438.5), Australia (+0.85% to 3624.3), Shanghai (+3.52% to 1928.9), Hong Kong (+0.27% to 13704.6), and India (+3.30% to 9370.5) were stronger. That will likely not be the case tomorrow.

In NY yesterday, only the Energy (XLE +2.5%) was a clear winner. The losers were Utilities (XLU -1.9%), and Industrials (XLI -1.7%).

Ahead of today’s headlines that December US retail sales “plunged” almost -3%, the Retailers ($RLX) dropped -1.0%. Oil Services ($OSX +3.3%) and Goldminers ($XAU +2.7%) were winners.

In the Cara 100, the winners were Korea’s KB +7.3% and India’s CTSH +7.0% and INFY +5.9%. The losers were ADBE -7.0%, FSLR -5.9%, and GE -5.6%.

The US long bond ($USB) was completely flat at 134.83.

In the rush of currencies moving from Europe to the US, the $USD gained again, up +1.35% to 84.20. It’s even stronger this morning against all the major currencies.

Crude Oil futures closed up +$1.12/bbl yesterday to 44.77, and were trading at 44.95 at 8:25am ET.

Gold futures ($GOLD) lost just $0.30/oz to close at 820.70.

The DJIA just opened down over -100 points.

Nortel Networks (NT), trading now at $0.25 after declaring Chapter 11 bankruptcy, used to be the largest component of the Toronto 300 Composite Index. My, how the mighty have fallen.

Yesterday was another nondescript session with the popular averages fluctuating around the unchanged level, before finishing mixed. Crude oil perhaps put in a temporary bottom, gapping to a new low for the past six days, reversing, taking out and closing above the high of yesterday on volume.

Gold stocks attempted to rally, opening on their lows and ending in the plus column on higher turnover. Still need to wait and see if the Fed and /or Treasury can manage to keep a lid on bullion prices. The large triangle pattern could break in either direction and we want to jump aboard after the path of least resistance is clear. A bullish long term outlook for the price of gold doesn’t preclude us from either shorting or awaiting better long entry prices if we believe the near term direction is lower.

Today was Bank of America’s (BAC) turn to be tarped and feathered getting shellacked (BAC -6.82%) on 240 million shares. Financial stocks need to provide some leadership or least stop imploding so traders can regain confidence in the economic system and put some idle cash to work.

The S&P has now made the round trip back into our 850 support area and needs to hold this important level. The action over the past few days while lackluster has done little to encourage traders to commit capital. The tape has been sloppy and stocks have been easily pushed lower. No one wants to take a stand without volume and liquidity returning to the market. If this general area is unable to hold, large pools of capital may drive down equities to test the November lows of 740.

Once earnings are reported, pay close attention to the reaction of stock prices to bad news. If earnings are missed or guidance lowered, stocks gapping lower and quickly reversing are signaling they are washed out and can be bought. No need to guess; simply observe the action, await a set up, place the order, and trail a stop. This regimen takes out all the emotion out of trading.

Didn’t do a whole lot yesterday, brought in some short calls in Sandisk (SNDK) (SNDK-1.28%) for a gain of $0.11 (would your advisor work so hard to make you a buck?), took off a profitable CTSH position, and awaited some definitive evidence on the next tradable move in stocks.

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