By John Galt
October 26, 2011 – 06:30 ET
The fate of the Western economies is up to France and Italy.
Meanwhile in fantasy and rigged market land, U.S. equities tanked on light volume again, but that has been the trend except during massive down moves in the market with the exception of one oversold rally. The 1 year NYSE volume versus price chart below highlights this fact:
From the chart:
1. First break in August resulting in days of massive declines.
2. Oversold bounce back rally, lighter volume than initial break.
3. Next sell off on lighter volume to new low.
What is important is that there has been no sustained rally on higher volume but no sustained liquidation on higher volume thus the direction of the market is difficult to ascertain. As it sits now, yesterday’s failure on the S&P 500 at the 150 DMA and 200 DMA was a short term negative, but still can reverse. Resistance today is around 1238 as the chart below demonstrates:
Should the market pierce the 1238 level today on hopium from the EU, then it has another shot at the 150 and 200 day moving averages. Based on the economic signals, reality should start to set in and data supporting these lofty levels in equities is not sustainable and should start to turn south regardless of what the European Disunion attempts. The wildcard occurs if the agreement is seen as too weak and the Euro banks start to implode on the various bourses overnight, setting the U.S. up for a sunrise surprise.
1260 is still major resistance with 1220 now acting as short term, but weak support.
Watch the Euro/Yen relationship today also as a break below 104 means there’s a crash coming due to a summit failure: