Morning Call: Trick or Treat: Euphoria from Euro Rescue Plan Fades
US stock futures point to a lower open Monday, following losses in European markets as the initial excitement fades over the Euro zone rescue package. Last week stocks soared after European officials hammered out a deal, but now investors are left to ask questions about whether the plan will provide a long-term solution to the ongoing sovereign debt crisis.
After such a rapid ascent in October, this could be a case of traders simply locking in some gains. Our stated target zone on the S&P this year was 1250-1300, and now that we have nearly reached the upper end of that level, it is certainly a prudent time to take profits. We are currently set to open just below the 200-day moving average this morning, and it will be important to see how hard bulls fight to hold onto that important technical level.
While last week’s resolution takes calamity off the table for now, questions still remain in Europe. Italy, the region’s 3rd largest economy, is second to Greece in terms of debt to national income, and its debts dwarf the $1.4 trillion new-and-improved EFSF. Italian 10-year yields remain above 6%, and a poor debt auction on Friday has led to renewed concerns over the the country’s footing.
Also factoring into the equation is heavy foreign exchange intervention from Japan, which sent the yen sliding lower versus the dollar and other currencies. The Euro soared against the dollar last week after the rescue plan was agreed upon, paving the way for strong equity gains, but it will be interesting to watch whether that trend continues.
The Wall Street Journal is reporting that MF Global (NYSE:MF), the futures broker led by ex-Goldman CEO and former New Jersey Governor Jon Corzine, is set to file for Chapter 11 bankruptcy and sell off assets to Interactive Brokers for $1 billion. Also breaking this morning, MF Global has been suspended from business with the NY Fed. The firm recently suffered its largest ever quarterly loss and a series of credit downgrades due to exposure to the European sovereign debt crisis. The stock fell below $1.00 last week after reaching 52-weeks above $9 late last year.
We have a few events to get through this week, with ISM tomorrow, jobs report on Friday and the G20 summit, so let me reiterate that now is not that time to get greedy long. Now we need to see if the commitment to the rally remains the same. We do that by watching retracement levels. So far, the markets never retraced more than 25% of each move over the last month. We are allowed to pull in more than that and still make a new highs on the year, but the speed and trajectory can change a bit.
First S&P support is at the 200 day, but we are opening a bit below around 1274. On Thursday I mentioned we can test the 1256-1246 area and still be considered very strong. 1238 is the Fibonacci 25% retracement. This type of pull back held each time since the October 4th low.
Resistance is 1292, which was Thursday’s high. The next area to potentially watch would be 1314-1316, then the the major zone would be 1343-1356.
Lots of stocks have hit historic and new highs, paying investors to hold, and some nice double digit gains across the board for some sectors and groups off the low.
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.
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