Major Stock Indexes and ETFs Bounce Off Oversold Levels

The Dow Jones Industrial Average (NYSEARCA:DIA) climbed 1.01% while the Nasdaq (NYSEARCA:QQQ) was up 1.2%. The S&P 500 (NYSEARCA:SPY) added 1.1% and the Russell 2000 (NYSEARCA:IWM) jumped 1.4%.

Optimism came from Greece where it now looks like the pro-Euro parties are gaining strength in the days leading up to the pivotal election to be held June 17th.

However, the Eurodollar (NYSEARCA:FXE) continued suffering, with its ETF down 0.1% for the day and the Euro trading at $1.2486, down some 6% from recent highs.

Spain’s credit rating was downgraded by Egan Jones and retail sales continued their steep decline with a drop of 9.8% in April.

Facebook (FB) continues to bleed, down 9.6% to close at $29.84, nearly 25% below the initial public offering price.

U.S. home prices were flat according to the Case-Shiller report, and consumer confidence tumbled to levels not seen since last January.

In late breaking news on Tuesday, the European Central Bank rejected Spain’s plans to recapitalize its ailing bank, Bankia, by using government bonds proposed to total $24 billion, which would then have been traded in for cash at the European Central Bank. The ECB didn’t like the idea as it said it violated its charter of not being able to fund sovereign nations. This significantly heightens the pressure on Spain to finance Bankia and its own crushing debt. So now the ECB has made it clear that it isn’t going to be a “lender of last resort,” and it casts into doubt Spain’s ability to finance itself on various open capital markets.

Spain’s stock market has been in free fall, down more than 30% since February, and its ETF, iShares MSCI Spain Index (NYSEARCA:EWP) declined 3.89% today.

Bottom line: Spain suddenly finds itself struggling to recapitalize its banks and manage its own debt while Greece hurtles towards its June elections. So this is going to be an ongoing game of chicken between Greece, Spain and the Euro Zone and is certain to generate intense volatility in the coming days.

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