While Europe dominates the headlines and drives the action, there is other news to be on the look out for this week. The Fed begins a two-day meeting today. The FOMC is expected to keep low rates steady, but as usual it will be interesting to read into Chairman Bernanke’s comments. The last measure employed by the Fed, Operation Twist, proved to be very unpopular among investors and the market sold off. Will he hint at QE3 or other measures designed to lift the housing market?
Also this week, we have the usual beginning of the month economic data on tap. Today at 10am we have the ISM survey number, which has surprised to the upside the last two months. On Friday we will see the jobs report, with non-farm payrolls and unemployment rate. The market would likely need improving data to continue to push to new highs, but it seems that today’s Europe news takes that possibility off the table for now.
TECHNICAL TAKE
This is why we don’t chase excitement! As the street got excited last week, we said it’s a good to time sell into major resistance and take a step back with better levels to buy in the next 3-5 sessions. I did not think it would happen so quick, and obviously this news is very unexpected. We had our eye on the 25% retracement level in the S&P to see if it would hold, but we are opening well below it this morning.
Market did close on the dead lows yesterday after a monster run. The good book says for momentum traders to go out short under that scenario! A Bankruptcy from MF Global (MF) created a bit of a reality check on where these assets might really be marked or be valued on some banks’ balance sheets. The surprise referendum called by Papandreou just raised the stakes for the G-20 this Thursday and Friday.
It’s safe to say the composure has changed from the last 4 weeks. But this doesn’t mean the it’s game over for the bulls, and the high of the year is in. But this time I’m not going to give a 90% chance that the high of the year is NOT in like we did when we corrected from 1256 and then hit 1293.
S&P is opening up below the 25% retracement level that held each step of the way during this October run.
25% retracement stands at 1238-1242, which is around $124 on the SPY. Under that is the 1220-1228 old resistance support that is worth noting, which is $122ish on the SPY. Then the 38.2% retracement level that stands around 1208-1212 ($121 SPY).
I will cover my short probably pre-market and look to see if it I see some relative strength to buy in these important isolated levels! This could be early too cover, but same way I was bit early to sell longs, you never need to get the exact area to book profits, but it keeps you safe.
Today we need to see if it’s the same type of day.. What I do is, I have all the leaders up on my screen. I look to see if anything goes green. I look to see if any groups stand out to trade or lead us up from the lows. It did not happen yesterday. But we were still just at the beginning of the retracement. Today could be different with a ton of opportunity as we are below the 25% area but above the 32.8%
*DISCLOSURES: Scott Redler is short SPY
