Stocks: The Bulls Have to Prove They Can Stop the Selling Early

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Chart-595International equities were mixed overnight with the Nikkei, Hang Seng, FTSE 100 and the CAC 40 initially showing weakness. European stocks were under pressure due to the uncertainty ahead of the ECB meeting and whether or not that group will decide to apply more stimulus. The biggest loser overnight was the Hang Seng which was down by roughly 1.3%. While the UK showed a nice lift in September retail sales, that news was partially countervailed by the revelation that prices in the retail sales report declined by a record amount of 3.6%. Kicking off the US economic calendar is a weekly reading in initial jobless claims that are forecast to have ticked up from the 255,000 print last week. The same time window presents August Canadian retail sales. A preliminary release of Euro zone consumer confidence is also expected to have pulled back from the September reading of -7.1. September US existing homes sales are expected to have increased from 5.31 million annualized rate recorded in August. The US Treasury conducts a $7 billion 30-Year TIPS auction around midsession.

S&P 500: The December S&P 500 trended lower throughout the prior session after posting a new high for the move and that would appear to be a key reversal or just a reversal of significance in place. Weakness in China’s Hang Seng overnight has been discounted to start today, perhaps because traders are hopeful of something positive from the ECB (more stimulus) or they were emboldened by the noted rise in UK retail sales for the month of September. Yesterday’s flow of corporate earnings came with mixed results, with positive figures from General Motors and Boeing but disappointment from Yahoo. Sharp declines in the shares of Valeant Pharmaceuticals, as well declines in health insurance-related companies also weighed on the healthcare sector. Therefore the bull camp has its work cut out for it today if they are going to completely arrest the slide off yesterday’s highs. US corporate earnings of interest are expected from Caterpillar, McDonalds, 3M Company and Dow Chemical ahead of the Wall Street opening, with, AT&T and Microsoft reporting after the close of business. Key pivot point support is 2009 and a failure of that level early could signal another big downside extension.

Other US Indexes: The Mini-Dow has a series of key lows just under the early market at 17,046 and the failure to hold that through earnings from several large Cap issues might prompt a resumption of the prior day’s washout. We would suggest that trade use McDonald’s earnings as a bellwether on the economy at large as disappointment from Wal-Mart earlier in the earnings cycle and McDonalds today could suggest more weakness in the economy than the stock market is giving credit for. We leave the trend down in the Mini-Dow unless prices make an early rise above 17,126. In the Mini-Nasdaq critical support is seen down at 4400 but more significant support is seen at the prior low of 4394.75. We think the bears have a slight edge unless corporate earnings or a soft claims result rekindles bargain hunting buying or on-hold Fed buying.

TODAY’S MARKET IDEAS: The bull camp has to prove they can arrest the prior session’s downward track on the charts. Therefore the flow of corporate earnings is likely to influence the direction of the entire market. We would expect to see a fleeting rally off the initial claims results as the no-hike or bad news is good for stocks theme temporarily lifts prices. For direction today we would watch the Mini-Dow as patently weak earnings could fan the fear of a slackening economy especially same store sales results from McDonalds and heavy equipment sales figures from Caterpillar. Use a key pivot in the E-Mini S&P at 2008.50 and therefore we suggest going with a slide below that level.

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