Europe Follows US Market Gains, Data on Tap

US stock futures are giving some follow-through to yesterday’s reversal, pointing to a higher open, although they are giving back some overnight gains. The market looked set to continue lower yesterday until the last hour, when an EU bank aid program was reported. European markets today shrugged off Italy’s downgrade and followed the U.S markets higher.

Shorting is a difficult game, especially in this environment when rumors and finance minister comments are hitting the market seemingly every few minutes. If you are going to short stocks or the market, you must have a firm plan in place for entries and exits. Last week we targeted a re-test of the wedge pattern as a place to start edging into some shorts, and I was able to add as the market ignored potential “window dressing”. My target for the short trade was a momentum flush down to the 1070 area in the S&P, which was the first major level of support below the 1101 August lows.

Some investors may have panicked and looked to get short/hedge or put in stops on long positions on a break of those August lows. That served to both clean out supply and intensify the squeeze yesterday afternoon. After news and action like we saw yesterday, it would seem a little imprudent to hold onto shorts at this point. The next few sessions will be crucial to determining whether that was the bottom for 2011, which I think is very possible. A powerful outside reversal day like that usually leads to significantly more upside over the next few days.

Right now I see an eerily similar set-up to what we saw last Summer, when the S&P broke 1040. The markets quickly quickly plummeted down to 1010, then we rallied even faster back above 1040 with the same type of trap. Some fought the move for the rest of the Fourth Quarter. Some covered, regrouped and then participated with a nice rally that went into the New Year. With all that said. We need to measure the action the next few days and see if there is commitment to yesterday’s move. If we get a weekly close above the 1101-1120 area, the charts will look a bit more constructive.

Although the action is now more bullish, there are still a ton of problems in Europe and the potential of China slowing is increasing. We have the jobs number Friday, which will need to be decent. Corporate earnings are around the corner and could provide another boost. To this point corporate earnings have provided a boost for the market, but what happens if they start to slow down? Either way, it seems like the volatility will continue.

*Disclosures: Scott Redler has no positions

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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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