Continued selling pressure has carried SPX to an important support located in the area of 1293. The impressive downside momentum in addition to extremely oversold breadth indicators are suggesting that the corrective EWP from the April 2 top is by no means reaching an end. I am inclined to expect more downside pressure ahead and/or a larger EWP before price completes its course of action and the intermediate up trend can resume with a potential fourth quarter rally.
Europe probably is now in a final critical phase and point of no return, as it needs now to clean up the Spanish financial sector and assess the incremental damage of a minor Euro-zone disintegration if Greece leaves the Euro. The Greek problem and uncertainties will weight negatively at least until the coming June 17 elections.
In the US the “Operation Twist” is scheduled to terminate by the end of June.
There will be a lot of attention placed on the next FOMC meeting on June 20. It is a fact that most likely the FED will have to come to the rescue once again, but probably, in order to justify more QE the equity market will have to drop further.
