The outlook for today is for stocks to try to stage some kind of a stronger rally than was seen on Friday. The early morning weakness we see at the start today is in part caused by the 5 Billion Euro rescue of Portugal’s Banco Espirito Santo. Saving the bank wasn’t what concerns investors, it’s that European banks need to be saved again. Investors felt that the banking mess was behind them. After all it has been 5 years since the credit crisis. Investors worried that the banking problems still exist and it is only a matter of time before they come back to haunt investors again. This was a small rescue, but the size is not what mattered. What mattered is that it had to be done at all.
Market Direction SPX Morning Chart
The SPX August 4 morning one minute chart below show the weakness that was evident today. On Friday stocks traded within a fairly narrow range after breaking through 1919 on the low side and then pushing back to 1930 on the high, the SPX closed at 1925.15. This morning opened with a slight bounce and then a sideways pattern developed. The initial push to 1930 met with resistance as buyers tried twice to break through 1930 by 10:00 AM. In the end though investors saw the light volume at the start of today and sold stocks back down.
This morning what investors should be watching is the Friday’s close. If 1925 holds then I am expecting the SPX to move higher. If by the lunch hour the 1930 level has been taken and held, we should see a higher afternoon. If though we continue to meander between 1930 and 1925, stocks will most likely move lower putting any kind of strong rally from last week’s sell-off on hold.
The Sell-Off
Last week’s sell-off did a lot of damage technical to the market and fundamentally to investors. Many have had their nerves shaken and even with the knowledge that the Federal Reserve will probably step in if stocks start to fall too hard, investors are still jittery.
SPX Market Direction Outlook Into The Afternoon
Into the afternoon the weakness looks set to stay. The key at present is the 1925 level. As long as stocks stay above it, the chance for a strong rebound rally is likely.A break below 1925 and the rally is probably not going to start at this level, but will wait for the market to move lower again.
It’s disappointing but there are numerous issues from Argentina’s default to Europe economic slowdown thanks to sanctions against Russia, to Gaza, Middle East Tensions, the Ukraine, to interest rate concerns and finally, banking problems arising yet again.
All of this appears ready to keep investors cautious for the time being which is probably the best stance to take this morning.
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