I had a sense in the latter part of last week that each time we kept bouncing off S&P 1370, that this market was going to do the thing that frustrates the most number of people – that is (if we were headed lower) to gap down through that key level – where no one could position for it intraday. [Apr 20, 2012: 1370 - Resistance Becomes Support.... for Now] Tongue in cheek I said I could envision Joe Kernen of CNBC blaming any Monday morning weakness of the winning of "a socialist" in the first round of French elections – because that's what Joe blames everything on. ;)
News stories this morning are in part blaming the "uncertainty" of French elections, along with the more likely reasons, continued weakness in PMI figures in China and Europe overnight.
- “The risk was always that the European crisis and associated weak economic activity would encourage more extreme politics. This is slowly happening and is something we need to watch going forward,” said Jim Reid, strategist at Deutsche Bank, in a note.
Germany is of particular concern as the wheelhouse of European manufacturing.
- Business activity across the 17-nation euro zone contracted at a faster-than-expected pace in April, according to the preliminary purchasing managers' index, or PMI, readings released Monday by data firm Markit.
- Manufacturing PMI fell to 46.0, the lowest in 34 months, from 47.7 in March, defying economists' expectations for a rise to 48.1. A reading of less than 50 indicates a contraction in activity.
- Services PMI fell to a five-month low at 47.9 from 49.2 in March versus forecasts for a reading of 49.3.
- The composite PMI also fell to a five-month low at 47.4 from 49.1 in March. Economists had forecast a rise to 49.3. "The flash PMI signaled a faster rate of economic contraction in the euro zone during April, extending what appears to be a double-dip recession into a third consecutive quarter," said Chris Williamson, chief economist at Markit.
- Preliminary German PMI Manufacturing decreased to 46.3 points in April, from 48.4 points in March.
China stabilized (bounced a tad), albeit at contractionary levels:
- China's manufacturing activity contracted further in April, although the sector improved from levels seen in March, a preliminary reading from HSBC showed Monday. HSBC's so-called "flash" Purchasing Managers' Index rose to 49.1 in April, compared with a final reading of 48.3 in March. The flash PMI is based on responses from 85% to 90% of those surveyed in a given month.
If this break of S&P 1370 holds going into 9:30 AM EST, last week's lows of 1365 and then lows of the previous week of 1357 are key levels that traders will eye. A close and hold below 1370 will have intermediate term levels of 1340 (March lows) on the radar. If you are playing at home the "bear flag" I keep mentioning seems to be fulfilling. Keep in mind Apple is at the 50 day moving average and perhaps buyers (and gamblers who love to pile in ahead of earnings) will help keep it up, which would help NASDAQ – and thus lend a hand to the market as a whole. We'll see.
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