Wednesday, June 2, 2010

Another Big Decision Has Arrived

There was clearly intervention yesterday morning in The Euro. The Euro (FXE) needs to hold the $121 level that has been serving as support since May 18th. It has either found support and building for a breakout, or it has had a horribly weak bounce and will resume its implosion. A decision of major consequence seems to be coming in the very near future.

In the end, there are only two choices for Greece and the other countries in a similar debt situation, which was to devalue their currency or default on their debt. Because of the Euro, those countries can`t devalue their currencies, so default is inevitable for some of them. It just doesn’t have to be this week…

We are obviously at a critical juncture. The S&P 500 has been consolidating between the 200-day EMA (1,101) and the low of the flash crash (about 1,040). A close below 1,068 opens the door to testing the 38% retracement level at 1,008 and the 50% retracement level near 943. The most Bullish scenario is a retest of the 1,040 low that puts in a higher bottom. Then a break above 1,103 would make the trend higher and force a lot of Market Timing money into stocks.

Here is the hourly chart of the SPX. You can see that it is in a 3-day consolidation. A breakout from here has obvious consequences, with 1,103 so close. You also have key support at the closing low for this move near 1,070. A break above 1,103 today on strong volume would potentially be a Follow Through Day, so anything can happen. The NYSE, Russell 2000, Dow, NASDAQ, Mid Cap 400, Emerging Markets and EAFE all have the same hourly pattern.

This may end up being the retest of that Reverse Symmetry Triangle I showed last week for The NYSE.

Also, the Percent of Stocks Above their 50-day is trying to put in a higher bottom here at 12.9% versus 10% last week.

One more thing – are Semiconductors replaying the last correction?