US stock futures point to a higher open Tuesday following sharp losses to start the week. Political bickering once again weighed on stocks as the congressional super-committee was unable to come to an agreement on how to slash nearly $1.2 billion from the government deficit. A stale mate over the debt ceiling sent the markets tumbling in July, and this weekend’s impasse marks the second time Congress has triggered a sell-off in world markets.
Europe also remains in focus as officials remain at odds over how to tackle the mounting sovereign debt crisis. Spain saw its bond yields rise once again today in a short-term auction. European officials want the ECB to begin more aggressive bond purchases and create a more stable Euro-bond, but Germany opposes these measures. The continent’s leading economy feels that such actions could trigger inflation, saddle the ECB with bad loans, and expose itself to irresponsible spending from other Eurozone economies, which would have less incentive to reform economic policies.
It’s hard to be excited about the state of the world economy today. European bond yields going to historic highs, nation by nation. Previously unblemished sovereign debt ratings are being slashed, country by country. We have broken structural entitlement systems both here and abroad.
But that doesn’t mean we can be thankful for what we have. As traders, we are thankful that we have the tools to manage risk in these uncertain times, rather than simply park our money long-term into a market that is broken.
The market had a 15-17% move from the October 4th low of 1070 to the 1292 high on October 27. The market did this quickly and convincingly, never violating the 25% Fibonacci retracement zone!
The pull-back into the 38.2% retracement zone from the highs on November 1 was our first signal that things were beginning to change again. On November 16th, the market resolved a technical wedge pattern to the downside, officially putting us back into a market correction, per IBD.
We have seen 4 straight days of heavy selling, and now it’s time to see whether we can put in another short term bottom. Yesterday, the market held the 1183 level, which is the 50% retracement zone from highs. What does this tell us? It tells us that the bulls should not give up, but we are in a little bit of no-man’s land. I believe we will have a slow, thin tape for the rest of the year, barring any monumental headlines out of Europe.
Most importantly, this week be thankful for the little things. Things are tough out there, appreciate what you have. Enjoy your family! My Grandma used to say, if a check can solve your problems, you don’t have that many problems.
Disclosures: Scott Redler is long SPY