Morning Call: Market Continues to Fall as Greek Default Fears Surge

US stock futures continued lower overnight as the focus remains on Greece’s ability to avoid default. Fed Chairman Bernanke is set to testify before Congress for the first time since ‘Operation Twist’, can he give the market a lift. European markets fell sharply Tuesday after Eurozone finance ministers said last night that they will wait until later in October than previously thought to decide whether the extend more aid to Greece.

Banks continue to be under extreme pressure as talk of major write-downs grows. A 20-50% haircut for bondholders has been mooted, and the potential write downs for banks continue to pressure all overseas indices. Many believe that this difficult step is the only way to materially solve any of the current woes in Europe. Euro finance ministers indicated a significant bondholder haircut would have to be part of a second Greek bailout.

One stock that looks at least to have ended its stretch of relative weakness is Apple (Nasdaq:AAPL). The company is set to have a keynote event today that is presumed to be the unveiling of the iPhone 5. Combined with Bernanke’s testimony, perhaps these events can drown out some of the pessimism and produce an oversold bounce off the 1070 area in the S&P.

The Oscillator has reached -51 which is pretty oversold. Markets have bounced from this type of reading in the past but this market is very sick and very dangerous. We say “don’t try to catch a falling knife”, and it is a painful reality to use that description about the broader market. Remember that the Oscillator was -110+ before the market bottomed in August, so don’t start too early if you are looking long. I wouldn’t think think of macro longs until we are trading below 1050 in the S&P.

High beta tech stocks remain under pressure despite AAPL holding up well in the pre-market. When the market loses its momentum leaders, and you start seeing technical damage to individual stocks charts while the indices hang on by a thread, it is a sign of things to come. We saw that last Wednesday.

While this wide lower flag pattern had remained intact, a recent series of lower highs had begun to forecast the downside continuation was imminent. In the S&P we saw 1230 on 8/31, then 1220 on 9/20, and lastly 1195 on 9/27.

Yesterday we broke below 1120 and closed below the August 9th low of the Summer at 1101. The 8 week range that traders have been using as a guide to trade against is in the process of getting resolved to the downside.

If you are short this market I would think to cover into a cascade lower where 1070ish will be some support. If you are short and cover early it will put you in the right frame of mind to potential accumulate into bigger support lower. If you are waiting to put money to work, wait for a quick momentum rinse before thinking buy. Yesterday was a very controlled, steady sell-off, not the type of action that forecasts a bottom.

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. 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 October 112, 111, 109 (NYSE:SPY) puts and Short (NYSE:SPY).

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