Europe Still Fragile as U.S. Stocks Closer Lower

Europe jitters trump good economic news at home and send U.S. stocks lower again.

Major U.S.stock indexes dropped again today as worries over sovereign debt default in Europe and rising bond yields overshadowed good economic news at home. The Dow Jones Industrials (NYSEARCA:DIA) dropped 1.1% while the NASDAQ shed almost 2% and the S&P 500 (NYSEARCA:SPY) declined 1.7%. The sell off was widespread and broad based across all sectors as investors fled to the safety of cash and bonds.

The bad news came from Europe again where yields on Spanish 10 year bonds hit highs last seen in 1997 and close to the 7% level that is widely viewed as unsustainable, and this rolling problem continues moving around the continent from Greece to Italy and now Spain as Euro-zone leaders try to come up with a way to stop the “contagion.”

Major country indexes declined with Italy (NYSEARCA:EWI) declining 1.5% and Spain (NYSEARCA:EWP) losing 0.6%.

With Europe close to or in recession, everyone is looking to Germany and the European Central Bank for a way out of these problems and it will be more than interesting to see if the ECB embarks on a program of bond buying in Italy and Spain.

At home, the economic news continues improving as new jobless claims hit a seven month low and building permits rose more than expected, however, the news was not all good as the November Philadelphia Federal Reserve posted an unexpected decline.

On a technical basis, the S&P 500 (NYSEARCA:SPY) broke through an important technical support level at 1225 but remains above the widely watched 50 day moving average. Major support is just below at the 50 day average and around the 1200 level. The bulls need to make a stand here as a drop below those levels would likely lead to more significant selling.

Tomorrow comes the October Leading Indicators report, but as usual, all eyes will be on Europe, particularly Germany and the ECB. We are at a dangerous point here where the “negative feedback” loop must be broken if the bulls want to take this market higher.

As always, risk management via position size and stop loss points are important, but they’re even more important in today’s volatile environment.  While there is no absolute protection from a sudden crash or “black swan” event, a disciplined risk management program is an important key to success.  Discipline is important to success and this is even more important in these challenging days.

Disclosure: No positions in ETFs or stocks discussed in this article.

John Nyaradi is the author of The ETF Investing Premium Newsletter.