S&P 500 futures are up more than 3% this morning in sharp contrast to the heavy selling we have seen for the last two weeks. The catalyst for the big up open is optimism based on new proposals to contain the Europe’s debt crisis and a strong start to the U.S. Christmas shopping season.
Stocks reached extremely oversold levels last week, setting the stage for this type of bounce that we have grown accustomed to over the last several months. European markets are also up big today, with the CAC-40 in France leading the charge up 3.6%.
Reports claim that the IMF is readying a 600 billion Euro ($794) fund rescue package for Italy, but there has been no confirmation. There have also been reports that the Eurozone’s six Triple-A rated countries are prepared to float joint bonds in order to help fund the region’s indebted members (PIIGS).
Investors have started to worry about a worsening of the European sovereign debt crisis, with fears that the Euro currency itself could be eventually scrapped. Germany remains a reluctant participant in bailouts, and it remains to be seen what the end of the rope would be. Analysts believe the entire euro zone project is at a crucial turning point. Belgium, France and Italy all have important bond issues this week, which will likely play a major part in determining market direction.
TECHNICAL TAKE
The McClellan Oscillator reached extreme oversold levels last week, and Friday’s half-day reversal (closing back on the lows) likely got any cheeky longs out of their positions. The S&P 500 was down almost 80-90 handles since it resolved this wedge on November 16th to the downside, so Friday was certainly not a time to initiate new shorts.
Traders will be watching key technical levels today to see how the market responds to this open. Resistance #1 will be the $119.19-120.35 area, which is the area right under that pro gap* from November 21st. In my opinion, if you were holding swing longs from last week, this would definitely be an area to take some profits.
Resistance #2 is the 50-day moving average, which is curling down (a bearish sign), stands around $120.75. This zone goes up to the $121.43 gap fill. This is the area that some could try and test some new shorts. This could be in a day or so.
Resistance #3 is the $122.75-123.25, which would be the area that longer term bears will have to defend. I don’t expect this area to come into play this week, if it comes into play at all.
I’m sure macro investors welcome this open as you are in a tier one and have established positions to trade around. Also I did speak to some funds that put some midterm money to work after the sharp weeks and half decline. Continue to trade around positions at extreme areas and when patterns resolve.
Today’s up open will give us some new points of reference to trade against. It could loosen up opportunities in December for traders, so embrace it. Last week’s action was very hard to stay short, and buying did not work. So this will change it up a bit.
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