US stock futures point to a higher open Tuesday ahead of a key test for Italian Prime Minister Silvio Berlusconi. A mid-afternoon budget vote is being categorized as a test of Berlusconi’s credibility, and a failure of that vote would likely lead to a confidence vote. Italian bonds have surged to unsustainable levels and policy makers have turned their attention to what needs to be done with the country’s economy.
So far the market seems confident that a solution will be found, but there is certainly room for that all to change. Defections from Berlusconi’s ruling coalition have weakened his ability to implement fiscal measures and economic reforms. Stocks are perhaps surging because his removal from office could be seen as a positive thing, as is the changing of the guard in Greece. A more consensus government coalition in Italy would likely find it easier to push through economic reforms quickly.
Earnings season has started to trail off, but some big names are still reporting. Last night Priceline.com (PCLN) exceeded Wall Street estimates on the top and bottom line and is up around 3% in the pre-market. Results ahead of the opening bell this morning will be Rockwell Automation (ROK).
Yesterday was a bit of a gut check for the bulls as we tested some previously outlined support areas. 1235 on the S&P held firm as we absorbed a new batch of European headlines, with the the focus on Italy. Those focusing on the chart patterns vs. the headlines are having much more success as there are many stocks and sector patterns looking good for higher prices. I see a ton of wedge type formations that are poised for upside resolution. The hardest trade is often the most rewarding, and it is hard to be long in the face of these headlines we are seeing. Stay the course in smaller size, have mental stops in place, and let the patterns play out.
In terms of S&P Resistance, we are opening above the three day pivot of 1263-1265. If we can hold over this level for 30 minutes it will show some commitment to these higher prices. The next obstacle will be to take back the 200 day moving average around 1273 and then the high from October 27 around 1292-1295. First support will be 1235-1240 from yesterday, and bigger support is the 1215-1220 area that didn’t even come close to coming into play yesterday.
By John Darsie
Disclosures: Scott Redler is long AAPL, GOOG, MCP, REDF, SIFY, and JPM. Short SPY.