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Minyanville's T3 Morning Market Call: Fiscal Cliff, Greece Weigh on Futures


Home Depot is up 2% pre-market while Microsoft is down 4.5%.

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It seems like the world has been turned upside down in the past few weeks, from Hurricane Sandy's devastation, to the election and fiscal cliff worries. We have seen some major technical damage in the stock market that has been occurring since the Nasdaq ETF (NASDAQ:QQQ) broke its 50-day MA on October 9.

Nobody truly knows where the market will go from here. All you can do is measure the condition of the market along the way. On October 10 when the S&P (INDEXSP:.INX) was trading at 1442, about 70 handles higher than it is today, IBD put the market in "Correction Mode." That always tells me it's a time to be cautious. That was also the day after QQQ broke its 50-day moving average with force. When we see those type of conditions, we like to raise cash and go to a more short-term tactical approach rather than a multi-position portfolio approach. At that point you then measure levels and the composure of sectors and market leaders.

It's now a month later and the condition of the market continues to weaken. Most indices and leading stocks lost their 100-day moving averages and even their 200-day moving averages. Last week we talked about a potential floor of 1403-1407 in the S&P, which broke after Election Day.

Now here we are today. I talk about the significance of the 200-day MA all the time. Last June the 200-day was used as a "sellers trap." We broke below it for two days and then reclaimed it, which marked the summer bottom. That was different from the year before when we broke the 200-day and fell another 10-12%. During the past two sessions the markets have been dancing around the current 200-day moving average around 1380. There hasn't been much interest from buyers and it's been a very lethargic trade. Certainly nobody has rushed to get in.

This morning the futures are down six handles, not far from Friday's pre-market low. See if anything can go green and lead us off the lows. Look to tech for some clues as they lead us lower. Can the sector show some strength today? We are now breaking the 50% Fibonacci retracement from the June lows. The next real level is the 61.8% retracement at 1346. Use the recent 1373 low as a pivot.

Below is the CNBC appearance from October 9 where I talk about the significance of relative weakness in the tech sector.

In corporate news this morning, Home Depot (NYSE:HD) is up 2% pre-market after beating estimates and lifting full-year guidance. On the flip side, Microsoft (NASDAQ:MSFT) is down 4.5% pre-market after announcing Windows chief Steven Sinofsky was leaving the company immediately. Xerox (NYSE:XRX) is also down 1% pre-market after downbeat fourth quarter guidance.

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