Spain’s weekend agreement to bail out its banks backfired on Monday, sending stocks in Europe and the United States into a tailspin. Stocks on the NYSE initially traded higher, but then reality set in, and by the close, the initial gains had vanished and the final result was a broad loss for the day.
Investors in Europefled to the safety of U.S. Treasury issues. By noon, the 10-year note had risen 13/32 in price to yield 1.593%. But U.S. banks sold off as rumors swirled of a pending rate cut for the group. Citigroup (NYSE:C) fell $1.29 to $26.48, and JPMorgan Chase (NYSE:JPM) fell 86 cents to $32.82.
On Monday, the Dow Jones Industrial Average fell 143 points to 12,411, the S&P 500 was off 17 points at 1,309, and the Nasdaq was off 49 points at 2,810. The NYSE traded 738 million shares and the Nasdaq crossed 423 million. On the Big Board, decliners were ahead of advancers by 3.8-to-1, and on the Nasdaq decliners were ahead by 3.3-to-1. Declining volume was ahead by 11-to-1.
After a sharply lower VIX opening, the “fear index” quickly reversed, running from 19.87 to close at 23.5. It was one of the most volatile days in months, and since the VIX is a contra-indicator, not a good sign for the bulls.
Monday’s high of 1,336 on the S&P 500 exactly matches the upper resistance line. And the run up was preceded by a reversal, which confirms the importance of this line.
Monday’s low of 1,308, several points under the 20-day moving average, confirms the support line at 1,293. And the upward-trending 200-day moving average, now at 1,289, will shortly intersect with 1,293, giving it added significance.
Conclusion: The two late-May peaks mark the top of the trading range (1,226). Following the first peak, the market fell sharply, violated the 200-day moving average and reversed.
The late-May decline was driven by negative breadth and negative volume of 12-to-1 on the NYSE and 24-to-1 on the Nasdaq — a delight to the bears.
Monday’s reversal (down) was not accompanied by high volume, but the ratio of declining volume was 11-to-1. This adds up to a very weak technical scene with the May breakdown overshadowing the direction of the market.
What could change the trend? A close above the resistance at 1,336 would help, but a penetration of the 50-day moving average is needed to confirm a new uptrend. For now, the market’s path of least resistance is lower.
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.
