Equities: May Not Take Much To Inspire a Technical Rebound

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Global equity markets were sharply lower during the overnight and early morning hours, as fears of a European debt contagion mount. The breakdown in talks to form a new coalition government in Greece has pushed the country into a new round of elections. Probably the more severe threat is a liquidity crunch as people withdraw funds out of Greek banks. Some estimates suggest that Greek banks saw outflows of around $900 billion on Monday alone. Outside market weakness and a definitive risk-off vibe weighed on the Japanese Nikkei, which slipped to its lowest level since January 23rd. The Chinese Shanghai Composite slumped to a new four week low, coming under added pressure from stagnate Chinese loan growth in May. However, some pockets of the market saw the soft data as a force that could motivate their Central Bank to ease monetary policy, and that might have limited losses. The major European indices were down nearly 1.0% this morning, as they tried to rebound from their morning lows. While the early morning tone was negative, a better than expected read on UK employment data helped lift the major indices from their session low. Perhaps the negative sentiment in the market could get a lift from this mornings active US economic calendar. The trade appears to be factoring in a considerable monthly improvement in US housing data in April, as well as an increase in industrial output. Markets will get the latest FOMC meeting minutes later in the session, and will likely key in on any comments regarding the US labor market or potential for more quantitative easing.

S&P 500: A weak early morning trade in the June S&P 500 pushed the index down to its lowest level since February 2nd. Overnight weakness in Asia, ongoing uncertainty with Greece and definitive risk-off vibes in outside markets leaves the bulls with a number of headwinds to overcome. Further weakness in the index came in the wake of JC Penny’s earnings Tuesday afternoon that fell short of estimates, especially since they discontinued their dividend and posted weaker than expected sales figures. The index will get more retail-related earnings from Target and Staples prior to the Wall Street open. Both earnings reports are expected to come in above their year ago quarter performance. The index will also get the latest earnings this morning from Deere & Co, which is expected to show a gain of 19.0% compared to the same quarter a last year. While the June S&P 500 managed to bounce nearly 10-points from its early morning low, the short term trend continues to point down. It probably takes a move back above 1347.00 to overcome the bearish tilt.

DOW: The June E-mini Dow trended lower throughout the overnight and early morning hours and fell to its lowest level since January 31st. After marking its overnight low, the index has been able to pare some of its losses. The weak outside market tone and new FBI probe into the $2 billion hedge-related loss at JP Morgan continues to tamp down sentiment. However, extremely oversold technical conditions and fresh merger news of General Electric buying two foreign mining firms could become a source of support later in the session. The breakdown and subsequent downside follow-through action in the June E-mini Dow below 12,650 confirms a negative technical pattern that targets an eventual slide toward 12,000. In the shorter term, the next area of support comes in at 12,460. A move back above resistance at 12,759 would break the near term downtrend pattern.

NASDAQ: The June NASDAQ is on a six-day losing streak and has broken down below the March low of 2569.50 during the initial morning action. However, the index has been able to log a 20-point rebound from its early morning low and has climbed back into positive territory, and that is a minor positive. Perhaps some of the support for the NASDAQ comes ahead of this week’s IPO from Facebook, which raised the size of their offering and is now expected to bring in nearly $16 billion. The short term trend in the June NASDAQ is negative until prices climb back above 2616.25. The next area of support for the index comes in at the mid-February swing low at 2539.50.

TODAY’S MARKET IDEAS: With the June S&P 500 and E-mini Dow sitting at their lowest level since early February and sporting extremely oversold technical conditions, there is the prospect of new bargain hunting coming into the market. Especially the buy-the-dip crowd. Slowing global growth and the fate of Greece hang in the balance, and present equity markets with major negatives. However, it might not take much in the way of this morning’s earnings and economic data to inspire a technical rebound. While the trend in the indices point down, we can’t rule out the possibility of a near-term technical rebound. Downside support in the June S&P 500 comes in at 1313.50 and 12,460 for the June E-mini Dow.

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