S&P 500 May Revisit, Break October Lows

Includes: PSQ, SH, SPY, TLT, UUP
by: Chris Ciovacco

Bloomberg has a story, European Banks Get "False Deleveraging" in Seller-Financed Deals, which means if a bank sells an asset to raise capital, but makes a loan to the buyer, then they are reducing risk and adding risk in the same transaction. The story notes:

“The use of vendor financing to de-lever defeats its own purpose,” said David Thesmar, a professor of finance at HEC Paris, a business school. “The assets may become safer because the buyer injects equity, but the actual gain in core Tier 1 capital ratio for the bank isn’t as great as if it was purely and simply sold. It shows banks’ deleveraging is going to be tougher than planned.”

The biggest story of the day is a weak German bond auction. German bonds are the U.S. Treasuries of Europe. According to Bloomberg:

“This auction is nothing short of a disaster for Germany,” Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said by e-mail. “If the strongest nation in Europe has this kind of difficulty raising capital one shudders concerning the upcoming auctions in other European nations.”

Tuesday’s session gave us little in the way of new information. The market did run into resistance near 1,197. The odds are pointing to a possible rapid move toward 1,044/1,018 on the S&P 500 (NYSEARCA:SPY). As we mentioned on November 21, a push higher is also possible, but over the next few weeks the path of least resistance is down.

The video below reviews the short and intermediate-term outlook as of Tuesday’s close. After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Deflationary and conservative assets may be coming back into favor, which means bonds (NYSEARCA:TLT), the dollar (NYSEARCA:UUP) and shorts (NYSEARCA:PSQ) may offer one of the few places to hide. A close below 1,180 on the S&P 500 would reduce the odds of a short-term bounce in stocks.

Disclosure: I am long UUP, TLT, PSQ.