Watch the S&P 500 for a buy signal

Disappointing economic data from Europe and China sent stocks lower yesterday, despite a better-than-expected initial jobless claims number. Stocks that are exposed to global growth, like energy and materials, sustained the biggest selling. FedEx (NYSE:FDX) fell 3.46% following an earnings report that saw revenues fall short of estimates and forecasts that could miss Street expectations.

Other global stocks were hit hard, as well, with U.S. Steel (NYSE:X) off 5.82%, Alcoa (NYSE:AA) down 2.53%, Deere & Co. (NYSE:DE) off over 2% and Caterpillar (NYSE:CAT) off 2.36%. The Dow Jones Industrial Average fell 78 points to 13,046, the S&P 500 was down 10 to 1,393, and the Nasdaq lost 12 points to close at 3,063. Volume on the NYSE totaled 762 million shares while 411 million traded on Nasdaq. Decliners outpaced advancers on the Big Board by a ratio of 2.8-to-1, and on Nasdaq decliners were ahead by 2.2-to-1.

Since much of the blame for yesterday’s decline rested on Europe and China, you would think that they had reversed their bull markets with devastating plunges.

But instead of a bearish DAX chart (the index that lists most European stocks), we see much the same pattern as our S&P 500 and DJIA. One big difference is that the DAX has so far failed to break the June/July highs. Also note the fresh MACD sell signal telling us to look for a correction to the next support at around 6,800 and then at the 50-day moving average (blue line).

Supposedly, the real driver of yesterday’s selling was weak economics in both Europe and China. The Hang Seng Index trades in Hong Kong and represents most of the influential Chinese stocks. Yesterday the index was up almost 45 points. It is in a correction within a bull channel, with current support at the 50-day moving average (blue line) and major support at the 200-day moving average and bullish support line — both intersect at 20,000.

The S&P 500 broke to new highs in February with little in the way of resistance above it. Yesterday’s decline of more than 10 points broke the index into its first major support zone at 1,375 to 1,400. It also triggered a MACD sell signal, and so we expect to see a pullback to the bottom of the zone with chances very high that the pullback will be contained. The near-, intermediate- and long-term trends are up.

We have, however, received our first technical signal that a minor correction is in progress. Get your buyers’ wish list ready, because at 1,375 you should be a strong buyer of U.S. stocks.