Since the equity markets last correction in early February, there has been a sustainable rally connected to increasing economic improvements. But in the last few weeks market participants began looking for some kind of correction. But what would cause it?
In our comments from 4/26/10 we asked if the equity markets were overbought and potentially nearing a correction. On 4/27/10 we received longer term signals in the DJ, S&P and NASDAQ futures (basis June), that at least the market could be going sideways if not selling off.
Initially the fraud charges against Goldman Sachs caused a quick selloff, but then the markets quickly bounced back. However last week witnessed the market quickly move from cautiously nervous to panic as the Dow Jones dropped 1,000 points with the fear of European contagion. Keep in mind as the euro depreciates, U.S. products and services become more expensive overseas. All of this fear could slow down the global recovery.
Overnight the EU structured an aid program to defend their currency. This has caused a relief rally overnight in the euro and equities around the world.
Is the correction over or is there more to come in either price or time (sideways trading market)?
Since peaking on 4/26/10, the S&P futures corrected 13% intraday. The emini S&P June futures contract has resistance at 1169 to 1185. Support at 1148 to 1128.
In closing, it seems fitting to quote the song "Grease" written by Barry Gibb:
"This is the life of illusion
Wrapped up in trouble laced with confusion
What we doing here?"