Like heartburn after bad barbeque sauce, European debt worries have returned to upset stock index traders after the U.S. Labor Day holiday, the unofficial end of summer.
CME September S&P futures are weaker in early dealings Tuesday as new concerns about European banks resurface.
The euro fell Tuesday as there are worries that bank regulators will require greater money reserve for European banks as regulators meet in Basel. Separately, the Wall Street Journal reported that some European lenders’ holdings of government debt were understated during recent bank stress tests there, which weighed on European shares Tuesday. The return to fretting over sovereign risk threatens to derail stocks after last week’s first winning weekly performance in three weeks. The question is: can the market retain the bump up?
Friday’s unemployment report “was a little positive, but we need to make a lot of jobs,” said Jim Smitherman, commodities broker at Coquest. “The problem is we rallied into this number. Now what do we do for an encore?”
CHARTS LOOK POSITIVE
With Friday’s close just over 1100, September S&Ps rallied to their highest level in nearly a month. But as Smitherman pointed out, that’s also an issue. “The problem we have is starting this week at 1,100. There’s a lot of resistance at 1105, then 1120-1125. There’s a lot of good resistance this market must stand and face. If we rally Tuesday and Wednesday and push to 1125, we’ll be overbought. I’d be a seller of rallies at 1120-1125. If there’s a pull back to 1075-1070 I’d buy it, if the market lets you,” he said.
Given how the market has rallied, though, he said: “I’m comfortable enough to say we’ve put a floor on this thing, we’ve had enough bad news that 1040-1050 is looking rock solid.”
Market watchers at futuresMonster noted that out of the last 12 of 15 years, stocks have closed higher on the day after Labor Day, but also point out that September S&Ps have rallied 58 points in four days.
EMPTY ECONOMIC CALENDAR
The economic calendar this week reflects the Labor Day holiday that was Monday, with few notable reports slated for release. On Wednesday the Federal Reserve releases its beige book and on Thursday its weekly jobless claims and the July trade balance. Friday July wholesale inventories are slated for release.