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Morning Call: Stocks Try to Hold On Ahead of Debt Ceiling Weekend

July 28th, 2011

US stock futures are nearly flat this Thursday morning following yesterday’s potent down day. The Nasdaq led the drop, shedding 2.6%, and the technical damage among many stocks is significant. Despite a strong earnings season, headlines are driving this market. Currently, the pitiful debt ceiling scene in Washington is weighing on stocks.


Washington is scaring the public vs. instilling confidence in the system. You put this all together with some technicals and now the “Big Picture” in IBD has the market back in a “correction”. Earlier this week we talked about the big picture changing to “market under pressure” which has prudent market participants in scale down mode. That means taking some profits in winners, and lightening up on risk.


Yesterday we broke the 50 day and the zone I’ve listed many times that “should hold” if the market is any good in the short term. The McLellan oscillator is almost -60 so it makes it hard to “short” the indices. We were -55 when we rallied during the week of July 4th, and -80ish after the Japanese Tsunami crisis.

This formula makes trading very tough right now. We are oversold enough that resolution this weekend that could lead to a big gap up and ignite a big move. But on the flip side, if they can’t come to an agreement, markets are weak enough to really accelerate to the downside, compounded by a lack of QE. Under that scenario, we can easily see the 200 day quick which is around 1283, then the June 16th low of 1258.

On the positive side. Trading has been much better at times this month. The go-to list had nice runs into earnings, and most even made new highs or historic highs after earnings. This gave nice opportunities to take profits and even get some cute shorts off into the exhaustion gaps. There has been enough rotation to even take 1-3 day trades in groups that were not leading this market. Also Dunkin’ Brands Group Inc. (NASDAQ:DNKN) was a treat yesterday for those who follow my “Art of the first day of trading an IPO technique”

I love holding strong stocks and then adding to them as they break out to new highs, and that trade is off the table for now. In a correction, you get a chance to identify relative strength. We need to see which stocks and groups hold the best. If the S&P’s gets to its 100 day or 200day, see which groups hold their 10day 20day or 50day. If you embrace volatility, you can see the info that’s on display as the market gives many signals.

Right now the world is at war with debt. Congress needs to accept compromise. All of the politicians involved are focusing on their political careers rather than the good of the American people. Below is my segment about the Debt Ceiling on CNBC ASIA from yesterda.


I’m only a technical analyst but common sense tells me we need to settle this issue, to make progress and ensure a strong America for our children and grandchildren.

Scott Redler
Scott Redler is the Chief Strategic Officer of T3 Live. He develops all trading strategies for the service and acts as the face of T3 Live. Mr. Redler focuses on thorough preparation and discipline as a trader. Scott Redler has been trading equities for more than 10 years and has more recently received widespread recognition from the financial community for his insightful, pragmatic approach. He began his career as a broker and venture capitalist where he was able to facilitate relationships that led him into trading. Beginning his trading career at Broadway Trading in 1999, Scott moved on with Marc Sperling to Sperling Enterprises, LLC after establishing himself as one of the best young traders in the firm. As a manager at Sperling Enterprises, he maintained his status as a top trader in the industry while working closely with all traders in the firm to dramatically increase performance. Scott has participated in more than 30 triathlons and one IronMan triathlon, exhibiting a work ethic that also defines his trading. His vast knowledge and meticulous attention to detail has led to regular appearances on CNBC, Fox Business and Bloomberg, and he has been quoted in the Wall Street Journal and Investor’s Business Daily among other publications. Scott produces much of the media and content available to subscribers and followers. T3LIVE.com is an online financial media network and education platform that provides active traders and investors with market analysis, real-time access to strategies, and in-depth training from real traders, real-time.

*DISCLOSURE: Scott Redler is long SPY, DNKN, LVS.

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NYSE:SPY


 

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