Wall Street Week Ahead: Torn between bulls and bears

June 4, 2012

By Edward Krudy and Angela Moon

(Reuters) – Monday morning will be decision time for traders and investors: Should they buy or sell after Friday’s steep decline that pushed the S&P 500 below its 200-day moving average?

While comments out of Europe over the weekend point to signs of a more urgent push for a fiscal union the euro zone, that may be not enough for the market that just saw the Dow turn negative for the year and the S&P 500 dip below the critical 200-day moving average for the first time since December – a level that many technical analysts view as a harbinger of more selling.

In electronic trading on Sunday, S&P 500 futures fell 0.9 point, suggesting a slight dip at the open on Monday morning.

“The sentiment backdrop continues to grow more pessimistic and remains consistent with negativity seen at major bottoms during corrective pullbacks the last few years. Hedge funds are no longer showing interest in stocks,” said Todd Salamone, director of research for Schaeffer’s Investment Research in Cincinnati.

“The risk to bulls is that the sentiment backdrop worsens from here, but bears should also be on guard for a reversal in the sentiment backdrop, as major short-covering could follow,” he said.

Spanish Prime Minister Mariano Rajoy on Saturday called for the establishment of a central authority that would oversee and coordinate fiscal policy in the euro zone. Germany also wants a big leap forward in euro integration, but investors are doubtful whether the closer integration could restore market confidence.

“There’s no doubt that any kind of a show of a more aggressive move by policymakers is helpful. But the market has gotten used to the fact that the sharper the fall on a Friday, there’s likely going to be some action or rumored action forthcoming in the following week,” said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.

For the week on Friday, the Dow Jones industrial average fell 2.7 percent, the Standard & Poor’s 500 index .SPX slid 3 percent and the Nasdaq composite index .IXIC fell 3.2 percent. Both the Dow and the S&P 500 are off about 10 percent from their recent peaks, a retreat that would mark a so-called correction.

To read more, visit: http://www.reuters.com/article/2012/06/03/us-usa-stocks-weekahead-idUSBRE8501DK20120603

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