U.S. Stocks, ETFs Hit Again By Europe

It was another red day for U.S. stock markets yesterday as investors fled to the safety of bonds as political turmoil continued surrounding Greece and the stability of the European financial system.
 
The Dow Jones Industrial Average (NYSEARCA:DIA) dropped -0.98% while the S&P 500 (NYSERCA:SPY) shed 1.1%. Technology issues in the Nasdaq Composite (NYSEARCA:QQQ) declined 1.1% and small caps in the Russell 2000 (NYSEARCA:IWM) took the worst hit with a decline of 1.4%.
 
The catalyst for yesterday’s selling came again from Europe as political chaos continued in Greece and major European indexes took sharp declines. The FTSE 100 dropped 1.97%, the DAX gave up 1.94% and the Stoxx 50 fell 2.3% in an across the board rout as investors and European policy makers began to seriously consider the ramifications of a Greek exit from the Euro Zone. The Euurodollar was hit with declines of 0.74% to $1.28, now significantly below the psychologically important $1.30 level and now at levels not seen since last January.
 
Greece has been unable to form a new government and now faces elections next month with anti-austerity parties playing an increasingly major role in the political debate going on in the country.
 
Fear of contagion spread around Europe as Italian and Spanish bond yields rose again while German bund yields fell in a flight to safety on the Continent. Similar action was seen in the United States as U.S. Treasury yields hit lows for the year and levels not seen since last October with the 10 year at 1.782%.
 
Moody’s stepped into the fray with a downgrade of 26 Italian banks and Angela Merkel got crushed in a regional election in Germany as anti-austerity backlashes continued to spread around Europe.
 
On a technical level, things are getting very interesting as current levels of the major indexes represent major support that, if broken, would open the door to further declines. Levels on the S&P 500 to watch are the 1310-1338 band at which we’re just now on the top, and for the Dow Jones Industrial Average (NYSEARCA:DIA) keep an eye on 12,550-12,700.
 
Today brings significant economic reports in the retail sales, manufacturing and home builders sectors so volatility is likely to continue.