By John Galt
December 21, 2011 – 07:10 ET
The S&P 500 cash made it above the magic 50 DMA without surprise or little effort yesterday on the back of a proverbial “Santa Claus Rally” as predicted in these pages early in the morning of December 20:
With the markets hovering near 1240, the potential to test the 1248-1254 area remains but odds are it will fail intraday as the news out of Europe is digested and the ECB bank loan program is recognized for what it is:
The problem is that nothing has been accomplished to address the real issue, which is sovereign insolvency be it in a nation’s private financial system as in Ireland, or national bankruptcy like Greece. In fact the rally in the Euro has already faded from 1.32 back to the low 1.31 area as this is being typed which shows that the shorts are just about wrung out of the markets along with the bigger question still begging:
Who is bailing out whom?
The banksters in Europe took the loans to do what U.S. banks did which is to put a temporary patch on a sinking ship. This attempt at long term laundering to force banks to buy sovereign debt is only going to repair part of the damage about to occur from a Greek default. The issue of Greece has been moved to secondary news sources but the problem is still quite real and the decline in short term yields is temporary at best on an almost daily basis. The 1 year Greek Government bond yield in fact only declined slightly below the 350% level after this morning’s operation:
With all of this as a backdrop, look for trading today to probably engage in range bound moves between 1235 to 1254. A break below 1235 means we’re heading back towards the 1220 then 1209 levels, a break above 1259 means Santa is going to give the bulls one more moment to go on to CNBC and say “see how great stocks are” as investor outflows continue on a weekly basis.
Gold should hold the $1600 level this week as uncertainty demands a safety hedge with $1647 to $1660 acting as overhead resistance. The Euro rally is just about over and a break below 1.3050 should occur again any minute, hour or day now.