ECB Takes It’s Shot to Rescue the Economy

Using three letter initials used to mean we were talking about stocks, these days it refers to central banks. Yesterday the concluded the FOMC meeting and the Fed took a shot at what they thought the US markets needed relative to the economic outlook, and the results were nothing new. Today the ECB will take a shot and it is likely to do less than expected, in fact I am not sure they can live up to the expectations. Why the difference in expectation, Why are they so much higher relative to Europe? For one, the problems are much bigger, and two, Draghi comments last week created a higher expectation to do something to turn the tide in Europe. I am of the opinion that the expectations are too high from investors and the ECB can’t help but disappoint in whatever actions they take. Either way it promises to be an important day for Europe and in turn the global markets.

The FOMC meeting on Wednesday was a disappointment for investors as the Fed continues to kick the can down the road. The comments relative to  a weaker economic picture and fewer jobs added were expected, and the willingness to act in the future if needed were similar, thus the no action response was the same. Essentially it was not helpful, and truly anticlimactic relative to the build up. The S&P 500 index fell to 1375 off 4 points with 3 of those coming in the last couple of minutes of trading. The selling was muted as the real fireworks are today. The selling two weeks ago was on the worries relative to Europe as the Spanish bond had moved up to a 7.4% yield. Since the comments from Draghi they have fallen back near the 7% mark. If the moves are not deemed enough in relationship to helping Spain and Italy, the selling is likely to return and the S&P 500 index will test the 1330 levels again. Throw in the Jobs Report due out tomorrow and it could be an emotional couple of days for stocks.

In our notes yesterday we posted some key levels to watch for several sectors and indexes. I have updated them below for any changes relative to Wednesday’s markets.

  • SPY, S&P 500 index ETF needs to hold support at $136.65.
  • IWM, Russell 2000 Small Cap index ETF is lagging and needs to move above the $80 mark. The index closed below the 200 DMA and if it remains below this level will like head lower. Short opportunity building.
  • DIA, Dow Diamonds ETF support is $127.95 and holding above $130 would be key.
  • QQQ, NASDAQ 100 index ETF support is $64, breakout above $65.31 would show leadership.
  • XLF, SPDR Financials ETF $14.40 support and a move above $14.85 key to the upside.
  • SMH, HOLDRs Semiconductors ETF needs to move above the 200 DMA with volume.
  • XRT, SPDR Retail ETF support is $58.48 needs upside push through $60.
  • XLE, SPDR Energy ETF 200 DMA holding, support is $69.30.
  • UUP, PowerShares US Dollar Bullish ETF is holding $22.70 support. Watch the euro response to ECB today.
  • GLD, SPDR Gold Trust ETF support at $154.50 it will move lower is ECB disappoints.

There is other data out to watch today such as the jobless claims, factory orders and retail same store sales. The retail data will be important as the consumer is rumored to be slowing down in spending. We have seen an impact in the leisure sector, but the discount retailers are doing well. The higher end retailers are weaker as we saw in the earnings data from Coach (COH) earlier this week. XRT, SPDR Retail ETF has produced a series of three lower highs over the last four weeks as the sector consolidates looking for direction. Today’s data will not be the deciding factor, but it will show who the leaders are in the sector. As we discussed in the weekend update, this is a stock picking sector and there are clear leaders worth tracking.

Three sectors to watch today are precious metals, gold particularly. If the metal moves lower it will be a negative indicator for stocks short term. Small Cap stocks have been lagging and showing weakness. If the index can’t move back above the 200 day moving average watch for the downside to continue. A break below $76.20 on IWM would be an additional negative sign for small caps. Transportation gave back all of the move higher from last week and then some the last two days. IYT is moving towards the previous lows and that is a negative overall looking forward. These  are three sectors in position to lead the downside.

It is still all about the news and the reaction by investors will be emotional and temporary to start, but if it builds momentum support levels can be erased. Know your positions and why you hold them. Know where the exits are and keep your sanity while all those around you lose theirs.