Morning Call: Europe Rescue Hopes Fading, Market Gives Back Overnight Gains

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October 17, 2011 10:57am NYSE:RTH NYSE:SPY

US stock futures have given back overnight gains are now set for a lower open to start the week. Futures opened sharply higher this morning amid hope that European officials would finalize a comprehensive resolution to the region’s sovereign debt crisis. However, European markets have pulled back this morning as hopes begin to fade over


the rescue package.


A strong start to earnings season provided the impetus for the rally late last week, but is likely to be overshadowed by developments out of Europe this week. Last week, the market began to price in the perfect solution, but skepticism has emerged this morning. If the region can resolve the crisis, then earnings can once again be in focus, but for the time being they should have little bearing on the proceedings. Google (NASDAQ:GOOG) boosted the tech sector with a strong report last week, and investors will be watching Apple (NASDAQ:AAPL) closely on Tuesday.

More earnings reports from big banks came before the bell this morning, and the results continue to be lackluster. Wells Fargo (NYSE:WFC) is trading sharply lower after missing revenue expectations and only barely reaching the estimated EPS number. The sector continues to go through a retrenchment, and it seems a logical step to reduce expectations for the group going forward. Citigroup (NYSE:C) beat expectations in its report, which excluded credit valuation adjustment. The stock is slightly higher following the report, but weakening.

On a technical basis, the day that jump-started this rally was Tuesday, October 4th when the market put in a bullish outside reversal day. At the time the market was extremely oversold, with short interest reaching record levels, and the reversal put bears on their heels. Smart money seemed to believe Europe had come to an understanding regarding a debt-resolution deal, and within 9 days the market was 12% higher. Last Monday and Friday were also strong follow-through days, which show directional commitment.

Upside resistance for the market stands at 1235, with then heavier resistance at 1245-1255, which is the broken neckline from the Head and Shoulders pattern from late July. The 200-day moving average stands at 1276.

Support is 1215-1220, and since the rally has started the market hasn’t retraced more than the 20% zone, showing extreme strength. The 1204-1206 zone would be the next level to watch, and the new line in the sand is 1187-1195.

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.

*Disclosures: Scott Redler is long (NYSE:SPY), (NASDAQ:GOOG), and (NASDAQ:GOOG) calls

This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by T3 LIVE or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs.Visit the T3Live Homepage, Virtual Trading Floor, and Learn More About Us.


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