US stock futures point to a lower open on Wall Street Monday as anxiety continues over the European sovereign debt crisis. Italy and Greece are the main focus right now, and each has undergone major leadership changes in hopes of expediting economic reform. Data shows the increasing likelihood of another recession in Europe as it looks to avoid full-blown crisis.
Adding to the skepticism was Warren Buffet, who told CNBC that it was too soon to start buying European sovereign debt or bank shares because of uncertainty to whether officials have the ability to do whatever it takes to stop the crisis. Italy’s debt burden is too large to be bailed out, and the new government will have to move quickly to enact steep austerity measures in return for more aid.
Last week was a complicated week for the short term trend/momentum trader. On Tuesday charts looked ready to explode to the upside and those carrying multiple positions got blindsided on Wednesday. At that point the prudent risk averse trader had to pull back and re-examine their time frame. Wednesday’s potent down move got some momentum short on the brain and then Thursday and Friday’s drift higher threw them for a loop as well. The action is thin and hard to pin down at this stage.
We have a very large wedge pattern being built in the S&P. This type of pattern typically gets resolved to the upside. For those of you macro traders who sit through some volatile days, the maket has held higher during each pull-back, which is a positive sign. The S&P never even tested the 1215-1220 important support area.
Resistance in the S&P stands at Friday’s high of 1266-1268. A more significant level to trade would be a 30-60 minute close above 1277-1270. Above this area the 4th quarter highs of 1292-1294 zone come into play. A daily close above this area and markets can see 1320-1340 at some point by year’s end.
S&P support support stands around 1250-1255. For bullish composure to remain intact, we should not really close below 1238-1242
1226 held last week. The New line in the sand has moved up to 1215-1220 if you area trailing stops.
We will examine for specific actionable stock set-ups on tonight’s Off the Charts newsletter.
Disclosures: Scott J. Redler is long the SPY and IBM