The S&P 500 dropped more than 1% again Monday, putting a damper on hopes for a Santa Claus rally in 2011. Once again, the source of the pessimism originates from across the pond. New ECB President Mario Draghi this morning discussed contingencies for a Euro zone break-up, a subject that his predecessor Jean-Claude Trichet avoided like the plague for fear of spooking the market. The UK remains reluctant to commit additional bailout funds for the European rescue package, which is only the most notable roadblock facing the Euro's fight for survival.
Bank stocks continue to weigh down the market, another sign that the financial system is in a fragile state. Bank of America (BAC) [-4.1%] fell below the major $5 level for the first time since the height of the financial crisis in early 2009. Goldman Sachs (GS) also briefly broke its pivot low of $87, finishing the day down 2.7%.
Volume was predictably light during a pre-Holiday week, leading many traders to pare down risk. The S&P is now right at the 61.8% retracement level that we’ve outlined a few times in the last few sessions. $120-120.30 in SPY is the level. If we open below or trade below that level and hold for an hour tomorrow, it is likely that we see $119.61. The gap from November 28th would be the next stop at $118.82. And finally, if things really get ugly, the Friday Pivot we closed on From Thanksgiving is $116.20.
*DISCLOSURES: Scott Redler has no positions
