EmailAre there any exorcists out there? The equity market sure could use one, because it has been possessed by demonic forces that have a relentless hold on it.
Heads are spinning; mood swings are volatile; and there is speaking in devil tongues with a Greek, German, English, Chinese, French, Spanish, and Italian twist to the dialect.
The devilish babbling is continuing today amid another barrage of headlines that are imbued with negative connotations.
We won't recount them all here, but rest assured they revolve around the unholy trinity of Europe, the U.S., and China.
Reports that France and Belgium have pledged to guarantee the financing of Dexia, Belgium's largest bank by assets, and a burgeoning war of words between Congress and China on currency matters, have added to the demonic mix that has seen the S&P 500 drop 15% since the end of July and 8% since its intraday high a week ago.
Yesterday's sharp decline (-2.9%) pushed the S&P 500 below 1100, violating what technical analysts considered to be important support zones at 1120 and 1101 in the process.
The violation of those technical levels on a closing basis, which occurred despite better-than-expected economic news in the form of the ISM Index and auto sales for September, has created an expectation that further losses are in order.
That will prove true at the open. Currently, the S&P futures are trading 1.4% below fair value, so we will see follow-through selling at the start of trading.
The initial losses will trail the declines registered in Europe where most of the major averages are down about 3.0%. Those declines have been driven primarily by banking concerns related to the Dexia headline, word from Deutsche Bank (DB) that it is no longer backing its fiscal 2011 profit target, and the unsettling revelation that eurozone finance ministers have concluded the next tranche of financial support for Greece can wait as they take another look at private sector involvement in the second rescue package.
The tumult in the financial markets should raise the interest level in Fed Chairman Bernanke's testimony before the Joint Economic Committee today at 10:00 a.m. ET.
We are uncertain how the market will react to his comments, because it is possessed at the moment by the idea that neither the current monetary nor fiscal policies will bring it salvation.
With the demonic sense of negativity building, though, the time for an exorcism may soon be at hand.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
