The NASDAQ Composite broke decisively below its 200-day moving average and the S&P 500 slid through 1400 support as the market reacted to the election results and renewed concerns about Europe as German Chancellor Angela Merkel stated that the debt crisis is also hitting Germany, the country with the largest economy in the Eurozone. This confirms our prior pre-election view that Europe would withhold damaging news until the election results were in to increase the odds of Obama being reelected. Consequently, the euro dropped versus the dollar and other major rivals Wednesday. "Germany has so far been largely insulated from some of the difficulties elsewhere in the euro area. But the latest data suggest that these developments are now starting to affect the German economy," Draghi said. The NASDAQ Composite is now below the 3000 level and the S&P 500 below the 1400 level. The NASDAQ Composite is now 8% below it's high which puts it close to intermediate correction levels, with the deteriorating technial picture pointing to increased odds of further downside for stocks. Unless one seeks to play the short side of this market, cash is king.
The European Central Bank met this morning and voted to leave its key lending rate unchanged at a record low 0.75%. ECB Chief Mario Draghi on Wednesday said for the first time that the debt crisis was beginning to have an impact on Germany, the Eurozone’s largest economy. This suggests that the Eurozone is losing its most important engine of growth. Adding to the selling pressure was a renewed focus on the so-called fiscal cliff, a combination of automatic U.S. tax hikes and spending cuts set to take effect in January unless Democrats and Republicans can reach agreement. At the meeting, Draghi may imply a further rate cut may be in store in the months ahead but for now, the ECB will probably be content to wait as the implementation of the bond-buying program Draghi outlined in July and August remains the top priority.
Due to strength in the dollar, SPDR Gold Shares (GLD) ETF and iShares Silver Trust (SLV) sold off then recovered closing closer to flat on the day. So far they are attempting to hold their 200-day moving averages, and some volume support has been seen in the precious metals ETFs over the past two days, which is marginally constructive. Four more years of Obama likely means more debt and more money-printing, and an eventual return to its long-term devaluation trend for the dollar, so we would monitor the precious metals closely as a buy signal could materalize at some point. If stocks continue to sell off, however, precious metals may suffer as well as everything gets sold off as a "source of funds."
Apple (AAPL) gapped down and finished the day down substantially on big volume as it traded as much as 6.2% below its 200-day moving average which is the most its traded under this major moving average since April 2009. This underscores the possibility that AAPL has topped, bringing the 522.18 low in its prior base into play on the downside.