The S&P 500 index declined 4.9% since its May 21 high through yesterday as investors sell stocks on concern the stimulus tapering will be a negative effect on growth.
Equities: It’s an interesting thing to see the equity markets heading down so sharply even as U.S. economic data has been overall very good. It shows how much the bond-buying stimulus program of the Fed has affected the markets. We have a key downside level of 1569, and then a potential longer term support level coming in at 1545. We believe that if the S&P 500 gets down to 1545, we will see a sharp rally from this key support level. We are closely watching 1545.
Bonds: The bond market has continued its rapid descent in the post-FOMC statement trade, with yields continuing to rise. The SEP13 U.S. 10-year note is down 27 ticks to 126’08, with a corresponding yield of 2.5%, a new high for the year. The MAR16 Eurodollar futures are also down again, today trading down 9.5 points to 9814.5. We focus more on our 30yr bond futures analysis. This is looking like a high-conviction sell-off here, and while it is tough to ‘step in front of a freight train,’ we still have a first downside target/support level at 134’21.
Currencies: The Euro is interestingly weak for the 3rd straight day, on the ripple effect of the FOMC statement. The strengthening of the US dollar has caused declines in the Euro, Pound, and Yen. It looks like a selling vacuum in the Euro started in the high 131.40′s, so that could be a potential first resistance level. The next resistance level is a high volume area of 131.70. If the Euro rebounds next week, then we believe 131.70 will be a magnet for the market. If the Euro continues to slide, we look to the next support level at the zone of 130.80-90.
Commodities: Gold hit a low of around $1270, and now has had a small bounce to $1290. We believe gold could continue to head lower to the $1250 level, and we have a technical target of $1242. DEC13 continues its strength, even in the face of a rising US dollar. This market is one of the few positive commodities today, trading up $.01 to $5.615. We believe that DEC13 is having very bullish tones, and could continue its rally beyond the key level of $5.70. $5.63 is our key pivot level for this contract. Our first market profile upside target is $5.79.