Good morning. Ahead of a very busy calendar filled with lots of data, futures point to a slightly lower start after Moody’s threatened to downgrade global banks and the fate of a second Greek bailout remained uncertain. Here are the headlines:
- Stocks, Euro decline as default risk increases (BL)
- Greece battles mistrust to target bailout deal (REU)
- Greek official plays down talk of delay (WSJ)
- Europe demands more Greek budget controls (BL)
- Moody’s warns it may issue more downgrades (YF)
- Spain bond demand stays high, economy shrinks (REU)
- China reduces holdings of U.S. Treasuries (BL)
- Gold demand hits new records (CNBC)
- Summers, Clinton lead World Bank contenders (BL)
- Fed minutes show few supporters for QE3 (MW)
- Obama pledges not to demonize Wall Street (BL)
- Number of foreclosed homes climbed in January (YF)
- Congress reaches payroll tax-cut deal (REU)
- States use mortgage settlement to plug budget holes (YF)
- Concerns expressed over rising oil prices (WSJ)
- GM reports earnings (CNBC)
- SocGen net dives, misses forecasts (WSJ)
- Merger speculation surrounds Zales (REU)
We started off yesterday by trying to break above the now 9 day trading range, but both that attempt and another just before noon was unsuccessful and we closed out near the day’s lows and below the 10/20 day moving averages.
The price action once again on an intraday basis continues to show weakness and a change in character than the action we saw prior to last Thursday. The fact that the market closed out near its lows yesterday is ample evidence of that change in addition to the number reversal setups we’ve seen fail in recent days. The question now is whether we will see this price weakness spread to longer time frames than just upon the very short-term intraday.
As we head into options expiration, the longer time frames are still bullishly constructive. For example, the uptrend channel remains completely intact though we’re nearing the bottom trend line again. Also the bullish cup/handle setup still remains in play so long as we don’t trade under the S&P 1330 neckline. While there are signals that the market is set up for a fall (like the relative weakness in Transports and rise in the VIX) combined with the very bearish seasonal and price action studies already discussed, we’ll still need to see further price follow through below 1330 to indicate the rally is truly finished or at least put on an extended hiatus.
Bottom line – yesterday shows we’ve lost the bullish action on an intraday basis and now we’ll see if there is any further follow-through upon yesterday’s breakout failure and subsequent reversal. Of particular importance will be a break of the current range and whether that break is held on a closing basis.