Markets Shrug Off S&P Warning, Put Faith in Europe

US stock futures are flat Tuesday morning, holding onto Monday’s gains despite an S&P warning over the crediting rating of 15 Euro-zone countries. Despite a massive intervention by world central banks announced Tuesday, worries persist about the region’s sovereign debt crisis. After news came through yesterday about the S&P warning, stocks turned South but were able to recover into the close. The move by S&P seems to be priced in for now, with the liquidity intervention taking precedent.

As questions swirl about the futures of the European union, investors will keep a close eye on a summit of European Union leaders Thursday and Friday in Brussels. Stocks were buoyed Monday by comments from the region’s two most important leaders, German Chancellor Angela Merkel and French President Nicolas Sarkozy, calling for a new Euro-zone treaty including tighter budget rules and sanctions for violating them. The S&P warning could provide some impetus to get a deal done quickly in order to avoid unnecessary turmoil.

TECHNICAL TAKE

Market participants continue to scratch their heads as indices yawn at the S&P Eurozone warning of a massive downgrade. The rating agency basically warned that Europe better tend to business Frida,y or else! Markets gapped up again yesterday and punished anyone who bought after the first hour. This pattern is driving traders a bit batty. Markets hover right below an area that can ignite another 3-5% move into year end. Investor’s Business Daily Big picture still has us in a market correction.

Traders are scared to hold size overnight as we’ve been blindsided from time to time in both directions. This is one of the toughest markets to trade in more than a decade. You either need a super long-term time horizon, or to be a micro scalper. If you try and combine time frames and can’t handle it, you can get in a lot of trouble.

The level that too many people are now talking about remains resistance. The 200day still controls this market. A break above and close above 1260-1264 in the S&P should ignite some performance chasing and some short covering. Next Resistance is 1292 (the 4th Quarter high). If this gets in motion, we can easily see 1320-1340 early next year.

Upper support to keep this “pent up momentum” intact is 1238-1240. The more macro support level is 1225-1228.

Some buy-only fundamental guys that could be the bid of this market are preaching the bullish case. With nearly all of the S&P 500 companies having reported Q3 results, earnings are growth is at 17.9%, according to Thompson Reuters. Revenue grew 11% year over year. Seventy percent have beaten analysts expectations. S&P earnings reached a new all time high, yet the index is trading 20% below is 2007 high.

If you combine that information with a 13-year Technical Range, and some of the bullish monthly/weekly charts lining up. Next year can be powerful with some European clarity and some leadership out of Washington.

As market timers, we can measure it step by step. Find the best stocks to go to, and navigate short term ranges. If you have longer term money to put to work, I would do it on automatic monthly basis into a S&P fund. I think the next 10 years will be much better than the last 10 for market performance.

Disclosures: Scott Redler is long SPY

About Scott Redler 367 Articles

Scott Redler is the Chief Strategic Officer of T3 Live. He develops all trading strategies for the service and acts as the face of T3 Live. Mr. Redler focuses on thorough preparation and discipline as a trader.

Mr. Redler has been trading equities for more than 10 years and has more recently received widespread recognition from the financial community for his insightful, pragmatic approach. He began his career as a broker and venture capitalist where he was able to facilitate relationships that led him into trading. Beginning his trading career at Broadway Trading in 1999, Mr. Redler moved on with Marc Sperling to Sperling Enterprises, LLC after establishing himself as one of the best young traders in the firm. As a manager at Sperling Enterprises, continued to trade actively while working closely with all traders in the firm to dramatically increase performance.

Mr. Redler has participated in more than 30 triathlons and one IronMan, exhibiting a work ethic that also defines his trading. His vast knowledge and meticulous attention to detail has led to regular appearances on CNBC, Fox Business, Bloomberg, and he is a regular contributor to Minyanville and Forbes’ Intelligent Investing blog. He has been quoted in the Wall Street Journal and Investor's Business Daily, among other publications.

Scott received a B.B.A. in Marketing/Finance from the State University of New York at Albany, graduating Magna Cum Laude from Albany's School of Business.

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