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European markets are selling off sharply on the latest debt-crisis developments, but if the selling spreads to the US, traders and investors are likely to realize good buying opportunities.

Overseas investors took another look at Tuesday’s developments in the European debt crisis and hit the sell buttons early Wednesday. Once again, it appears that the “solutions” in Greece and Italy have failed to reassure bondholders.

The sharp uptick in Italian bond yields and the resulting impact on borrowing costs requires some quick action by the European Central Bank (ECB) and International Monetary Fund (IMF). A break below short-term support in the German DAX Index and in France’s CAC Index is likely to trigger further selling, both in the US and overseas.

Two hours before the opening, the US futures were down sharply with the Dow futures off 200 points and the S&P futures down over 28 points. Anything can happen before the close today, but if we do see a sharply lower close, it is likely to signal the start of a deeper correction and provide a good buying opportunity.

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Chart Analysis: The German DAX Index opened a bit lower Wednesday and quickly dropped well over 2%.

  • The next key support stands at 5747 (line a). A close below this level would be more negative
  • The 50% Fibonacci retracement support stands at 5699. If broken, it would signal a decline to the 61.8% support at 5526
  • There is first resistance at 6000-6100
  • A daily close above 6200 is needed to turn the chart positive

The French CAC Index has been weaker than the DAX, as concerns over the solvency of French banks have depressed this market. It is also down over 2% before Wednesday’s New York opening.

  • There is next support at 3029, which was the low on November 3
  • This low violated the 50% retracement support at 3053
  • A retest of the breakout level, line b, could take CAC to the 61.8% support at 2966
  • There is initial resistance at 3200-3230 with major resistance above 3300

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