European Jitters Continue to Weigh on Futures

We are in complicated times as Europe started to switch gears, from Pro Deficit Reduction and Pro Austerity,To Pro Nothing! All they want is to recover from a sickness without the time it needs for the medicine to heal! At this Point, Europe is So confused, they are voting out Chancellor Angela Merkel’s party in Germany, which to me was one of the bright spots.

My notes switched to a very Bearish Tone when technically we broke the 1390-1392 S&P support level on May 3rd and May 4th. It also combined with my common sense Fundamental view of Europe, when Greece’s rhetoric changed and Hollande got voted in in France. Those events showed me Europe will have a path of commitment to nothing vs. “somewhat” united path! When your formula of technicals + fundamentals line up, you go to cash, switch gears, wait for more data, and preserve capital.

There is a lot of uncertainty about the winds that are swirling in Europe, and I’m not sure anyone really knows what it leads to. But in 2010 we were 17% off highs, in 2011 we were 22% off highs, so my gut has been telling me we can at least correct 5% or so off the highs in 2012.

This week we have a bunch of “meetings” in Europe, so this market will be whipped around by headlines as this trade has become much more “macro” and less stock specific. The Late December through late March portfolio approach was fun while it lasted, but it’s off the table right now.

Eurozone finance ministers will hold a meeting Monday-Tuesday (this has been on the calendar for months) at which Greece and Spain are expected to be the main topics of discussion. Unfortunately traders don’t even know what they want to hear out of this, so we will have to wait for the market to tell us.

Merkel and Hollande hold their first face-to-face meeting Tuesday, May 15 (this should be interesting). Fed minutes from the April 25 FOMC meeting will hit on Wednesday, May 16.

Crisis and systemic risk are the words starting to be used all over TV once again as unfortunately it does feel that way. JP Morgan (JPM) didn’t help and now we are hearing rumblings about our own deficits with California back in the news again.

I will continue to stay tactical both long and short until I see more data and lower levels. This was the approach we went to as we entered second quarter. and reiterated last Friday as IBD went back to Correction.

Today we are opening at lower lows of this down move. Recent Support has been 1343 area in the S&P, and we are opening a bit below (SPY $134.49). If we stay below this level for the first 60 minutes, the greater the probability we see SPY $133.60-133.80

The 38.2% Fib retracement stands around 1318-1322 (SPY $131.80-132.20). If we see this level today, it should be big support. The Measured move of the Head & Shoulders pattern we pointed out numerous times is 1300ish—with a very big level at 1290.

Defined resistance we spoke about last week held the market in check, 1360-1365

At this point you all know the drill. Trade a level vs. a level with $134.49 as a pivot. It worked many times last week for longs and shorts. See if any groups can pull us off the lows.

A few clues (see below) I will watch to see if we double the futures to the downside today or just have another day last week:

Watch Apple (AAPL). The stock is trying to put in a bottom in the $555-560 area. If this holds, the downside could be muted. If we get a move below on a 60minute or daily basis, the stock can see $515-520 and this will help accelerate the market to the downside.

JP Morgan (JPM) the pivot low is $36.62, see if this holds or gives way. In the XLF $14.64 is a very big level, see if we hold or we trade below this $14.40 next area.

The Russell ETF (IWM) $77.97 is a big pivot to watch. In the retail sector (RHT) $40.94 will be key.

Last week each down open was buyable and the gap open was a fade, which has been Tactical Trading 101 as markets churned lower. Keep using that approach for now.

Here are some recent media clips from last week.

Some Recent Clips from last week

S&P 500 Could Correct to 1300-1320
Tuesday, 8 May 2012 6:13 PM ET
Scott Redler, Chief Strategic Officer, T3live.com says the S&P 500 could correct to 1300-1320, which would make it a compelling area to buy
Source: CNBC.com

JPMorgan Trading Losses to Weigh on Wall Street
Thursday, 10 May 2012 9:05 PM ET
JPMorgan Chase’s derivatives trading blunder will weigh on financial stocks Friday and could be a negative for markets as traders sort out the impact
Source: CNBC.com | By: Patti Domm

Disclosure: Scott Redler has no positions

• Become A Funded Futures Trader