Morning Call: Market Responding Positively to ‘Operation Twist’ Talk

US stock futures point to a higher open Tuesday after yesterday’s constructive action kept the bulls in control. A 2% gap down triggered fears of another quick correction as talk of a Greek default grew louder, but the market held in all day before surging sharply higher into the close. Last night futures were all over the map, but now seem to be focusing on the Fed’s two-day meeting.


The Fed is expected to discuss a policy tool called ‘Operation Twist’, where they sell short term bonds and buy longer term bonds (namely 10 yr notes) in order to lower long-term borrowing costs. Some commentators are skeptical over the tactic, citing failed ‘Twist’ efforts in 1961. The market, however, seems to like the idea so far. Be wary of the potential for a buy the rumor, sell the news type scenario with the Fed.

Europe also should remain on your radar if you are trading in this environment. Italy was cut to A from A+ by S&P, and Moody’s is likely, as usual, to follow. Greece is set to continue talks with International Lenders today after a “productive” round of talks yesterday. It’s hard to know what “constructive” means at this point. An announcement is likely to come Wednesday on whether lenders will extend Greece an October aid tranche. In separate news, a China state bank has suspended FX swaps with UBS, Societe Generale, Credit Agricole, and BNP Paribas after those banks had reportedly reached their credit limits with the BoC.

Yesterday the Nasdaq once again showed tremendous leadership on dips. Apple (NASDAQ:AAPL) was the star of the day, surging nearly 2.8% to all-time highs in a down market. The stock continues to perform well since Steve Jobs’ resignation announcement, almost like it had a massive weight lifted off its shoulders. Amazon.com (NASDAQ:AMZN) made another all-time high as well, but didn’t blast off the way AAPL did.

One area traders noted weakness was in the Chinese internet names. Although they did not fully breakdown, stocks like Baidu.com (NASDAQ:BIDU), Sohu.com Inc. (NASDAQ:SOHU) and SINA Corp. (NASDAQ:SINA) did not participate in the bounce. If the market turns back down, that is a sector traders will likely look to short.

The financials were also weak again yesterday as questions are asked of the major banks. A coordinated central banking effort to shore up the balance sheets of Europe’s most troubled banks last week provided a transitory boost for bank stocks, but they are weakening once again. That will be another area traders look to short.

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 (NASDAQ:AAPL), (NYSE:SPY), (NYSE:MGM), (NYSE:LVS).

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