MorningWord 7/3/13: Will This Week’s Data Confirm the Weak Technical Set Up? $SPX

by Dan July 3, 2013 9:25 am • Commentary

MorningWord 7/3/13:  I’ll keep this short and sweet for our Holiday shortened trading day. We have been of the belief that the May 22nd high, was the high.  We also believe that the SPX’s inability to get through important technical resistance, and close above (50 day moving average) will likely lead to lower lows, and that a close below 1600 would suggest a retest of last Monday’s lows and possibly the 200 day moving average at 1512.

[caption id="attachment_27772" align="aligncenter" width="589"]SPX 1 yr chart from Bloomberg SPX 1 yr chart from Bloomberg[/caption]

These are the technicals we are looking at in the U.S., but we have spent some time of late looking at the impending technical breakdown in European Banks below key 1 year support, just yesterday, “Something Rotten in DeutscheMark” (here), highlighting the weak relative strength among sector and specifically in one of its largest components, DB.  The Euro Stoxx Bank Index (SX7E) broke key support today (down about 3% as I write), dating back to the break-out level from last September.  We have long felt that before we could put a fork once and for all in the European Sovereign Debt Crisis, we were likely to get one more scare similar to what we saw with Cyprus earlier in the year….I’ll Take Portugal for $500!

[caption id="attachment_27773" align="aligncenter" width="589"]Euro Stoxx Bank Index (SX7E) 1 year chart from Bloomberg Euro Stoxx Bank Index (SX7E) 1 year chart from Bloomberg[/caption]

So dare I call the next 2 days in the markets both here and abroad “the moment of truth” for the potential of a summer swoon?  The ECB meets tomorrow while our markets are closed, and then before you even have time to shake-off your July 4th over indulgences the all important June Jobs report comes out Friday morning at 8am eastern.

So why are we focusing so much on the technical set up? Because it is weak, both here and abroad, and just as the path of least resistance for most of the first half of the year was higher, the technicals are telling us that with a little bad news we are likely to see lower lows rather than the higher highs we have all become accustomed to. Today we will be adjusting some positioning recognizing that the events of the next 48 hours have the potential to have a sort of binary outcome, but just as we get through some of the macro this week, we are gonna be knee deep in the micro as we head into Q2 reporting season in mid July.