Market Still Feeling Heavy as 4th Quarter Begins

Scott Redler |

Last week leading stocks started to get technically weaker, so active traders were stopped out of most swing long positions. The most telling day was Tuesday, when the Dow was up 225+ and stocks like Amazon.com (AMZN), Apple (AAPL), Netflix (NFLX), Baidu.com (BIDU), Sina (SINA), Priceline.com (PCLN), Green Mountain Coffee (GMCR), Wynn (WYNN) and Las Vegas Sands (LVS) were all red! When the market loses its leaders, the rest are generally soon to follow.

With the start of a new quarter but a heavy market, this should be an interesting week. The action over the past few weeks tells you that the market is going significantly lower, but the wild card remains policy action from Europe and the US Fed that could trigger a massive short covering rally. Technically, to relieve some pressure the S&P must take back the 1140-1145 area soon. On the flip side, a daily close below the 1101 level would likely lead to more downside.

Here are some important events to watch out for this week.

Major catalysts to watch coming up

• Eurozone finance ministers meeting - Oct. 3-4 - the main talking point will be the the EFSF. How can it be enhanced, both in terms of size and efficiency. Look for Germany to continue to be the most reluctant participant in any new measures. Expectations aren't very high for anything material to come out of this meeting, and the public comunique could be a non-event.

• ISM Survey - Monday, Oct. 3 10am ET- Recall the last US survey (August)? It surprised to the upside so the bar is a bit higher.

• Non-farm payrolls and unemployment rate - Friday, Oct. 7 8:30am ET– The Street is modeling 50% NFP adds (w/90K privates). This is the most important economic data at this point, with Fed Chairman Ben Bernanke calling the unemployment situation a national crisis.

• Bernanke testifying before Congress - Tuesday, Oct 4 - Investors want to know what's next after Operation Twist, and this will be his first chance to address that program. Based on the post-Twist sell-off, the market believes Fed to have become more hawkish (with 3 dissenters on the FOMC). This has helped to strengthen the dollar, which weighs on equities. However, with inflation expectations falling, the chairman may decide to highlight the tools still left in the Fed’s arsenal.

• Operation Twist will actually commence later this week. The WSJ on Friday said “Twist” may actually wind up surprising on the upside in terms of its influence on Treasury yields

*Disclosures: Scott Redler is long October 111-112 puts and Short SPY

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FINL The Finish Line Inc. 23.34 0.62 2.73 36,909
BIDU Baidu Inc. 162.89 1.22 0.75 144,192
AAPL Apple Inc. 108.86 -1.04 -0.95 5,110,686
SINA Sina Corporation 71.40 1.06 1.51 91,032
LVS Las Vegas Sands Corp. 61.64 0.65 1.07 339,991
PCLN The Priceline Group Inc. 1,478.42 5.42 0.37 30,012
AMZN Amazon.com Inc. 748.90 8.56 1.16 529,033
GMCR Keurig Green Mountain Inc n/a n/a n/a 0
NFLX Netflix Inc. 119.67 -1.14 -0.94 988,455

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