The Italy bond auction drama came and went with little fanfare. Futures are green. The semiconductors broke down yesterday, taking the Nasdaq south which helped drag down the broader markets. The euro breaking under 130 served as a catalyst for negativity. This morning the euro has broken down thru 129 to a one year low but, despite the break lower, the euro daily chart is positively diverged and wanting to see a small recovery rally. At a minimum, a move back up to back kiss the 130 level would be expected. The euro moves in the same direction as equities markets, so up euro is up equities.
The financials are key today. The XLF moved lower yesterday to close at 12.86, only six pennies above the bull-bear line at 12.80. If 12.80 fails, the markets are in major trouble. With futures green currently, this is likely not to occur at the open. Pre-market XLF is printing 12.94.
For the SPX starting at 1250, the bears have the easy road since the closing print was near the lows. If the 1248.50 level fails, the broad indexes will accelerate the downside selling. Bulls need to recover yesterday's losses to regain momo but since that is a formidable task, the bulls will instead focus on preventing the XLF 12.80 failure at all costs.
Gold is falling out of bed this morning. Once 1580 was violated, 1520 was targeted. If 1520 fails, then 1480 is next.
The last three major economic data releases for 2011 are occurring this morning with Jobless Claims at 8:30 AM, Chicago PMI 9:45 AM and Pending Home Sales 10 AM. Also of interest today are the Natty Inventories at 10:30 AM and Kansas City Mfg Index 11 AM, if the scheduling is correct.
Plain and simple, watch XLF 12.80 at the open. If it stays above, the broad markets head higher. If XLF fails, the broad markets will accelerate to the downside. If the bulls run today, watch SOX 368.60. If taken out to the upside then Santa is rolling thru town on the rally train again.
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