Futures Weaken After Alarming Italian Debt Auction

US stock futures point to a flat open on Wall Street Wednesday, paring earlier losses after the Euro fell below the key $1.30. Yesterday the market showed disappointment in the Fed’s inaction, selling off hard following the FOMC’s decision to keep interest rates steady. Also weighing on the market is an alarming debt auction in Italy, where the troubled country was forced to pay a Euro-era high yield of 6.47% on 3.9 billion worth of five-year bonds.

The $1.30 level that was breached this morning is a key psychological level for the Euro, and one that has not been violated in 11 months. The slip could signal a worsening of the European sovereign debt crisis and a growing aversion to Euro-based assets. In contrast to Italy’s dismal debt auction, Germany sold 4.2 billion Euros worth of two-year treasuries at 0.29%, highlighting the disconnect between countries in the Euro zone.

Big market movers this morning include Avon Products (AVP), which is up 10% pre-market after announcing it will split the Chairman and CEO roles and search for a new CEO. Andrea Jung had been operating in both capacities.

TECHNICAL TAKE

The major indices right now are hanging onto its bullish composure by a thread. The Fed met yesterday and did nothing, signaling that it will likely require much more turmoil before new measures are taken. The Dow was up almost 100 points at the time of the announcement and sold off sharply to end down around 60.

The S&P barely held the 50-day moving average into the close, which is usually the case the first time a stock or index hits that level. The break usually comes on the second and third test. In the last week or so we’ve tried to figure out whether or not we can see upside momentum into the end of the year. The signs are not promising, however.

We have lost a few positives for the bulls to hang their hats on:

1. No more leadership from Intel and semi-conductors.
2. Retail numbers were not great. This was a strong spot, but now there is not momentum there.
3. Banks had a good run off the lows but are struggling to hold higher. Watch GS to hold $95.50.
4. Leading momentum names have weakened. Amazon.com (AMZN), Baidu.com (BIDU), Sina (SINA) and Priceline.com (PCLN) all lost energy.
5. Casinos like WYNN have been weak for a while and don’t have any compelling patterns.
6. The Euro summit is behind us, and there was no game changer. Rating downgrades EW still looming!
7. The Euro is making lows and a close below the October 4th low is not good for commodities.
8. Oil stocks are still okay, but only a tier one long in this lower area, if at all.
9. Although the agricultural group is a good theme for 2012, right now there is no sustained bounce.

I would watch yesterday’s low of $122.45 in the SPY as a pivot point to trade against both long and short against.

Keep your actions in the market light. I think most traders will be taking a sniper approach like myself into year-end rather than trying to swing trade in this manic environment. Yesterday was a nice short when the market failed after the Fed’s release. Pick and choose spots in both directions unless you have an ultra long-term time frame.

Gold has come under pressure as the ECB and US Fed have both declined to make more asset purchases. If you are short Gold (GLD) anything more than a tier one, this morning is probably a good spot to cover as it’s opening a bit below the 200-day moving average. This is a spot that might hold at the first attempt. I am flat GLD and will look for a Long set up for Cash Flow. Sometimes they break below, trigger stops, and then close back above. Watch the $157 level (200-day) and then $154, which is support from late September.

Disclosures: Scott Redler is long SPY, OIH

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