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Minyanville's T3 Morning Market Call: Euphoria From Euro Rescue Plan Fades


US stock futures point to a lower open Monday, following losses in European markets as the initial excitement fades over the eurozone rescue package.

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US stock futures point to a lower open Monday, following losses in European markets as the initial excitement fades over the eurozone rescue package. Last week stocks soared after European officials hammered out a deal, but now investors are left to ask questions about whether the plan will provide a long-term solution to the ongoing sovereign debt crisis.

After such a rapid ascent in October, this could be a case of traders simply locking in some gains. Our stated target zone on the S&P this year was 1250-1300, and now that we have nearly reached the upper end of that level, it is certainly a prudent time to take profits. We are currently set to open just below the 200-day moving average this morning, and it will be important to see how hard bulls fight to hold onto that important technical level.

While last week's resolution takes calamity off the table for now, questions still remain in Europe. Italy, the region's third-largest economy, is second to Greece in terms of debt to national income, and its debts dwarf the $1.4 trillion new-and-improved EFSF. Italian 10-year yields remain above 6%, and a poor debt auction on Friday has led to renewed concerns over the country's footing.

Also factoring into the equation is heavy foreign exchange intervention from Japan, which sent the yen sliding lower versus the dollar and other currencies. The euro soared against the dollar last week after the rescue plan was agreed upon, paving the way for strong equity gains, but it will be interesting to watch whether that trend continues.

The Wall Street Journal is reporting that MF Global (MF), the futures broker led by ex-Goldman CEO and former New Jersey Governor Jon Corzine, is set to file for Chapter 11 bankruptcy and sell off assets to Interactive Brokers for $1 billion. Also breaking this morning, MF Global has been suspended from business with the New York Fed. The firm recently suffered its largest-ever quarterly loss and a series of credit downgrades due to exposure to the European sovereign debt crisis. The stock fell below $1.00 last week after reaching 52 weeks above $9 late last year.

Technical Talk

We have a few events to get through this week, with ISM tomorrow, jobs report on Friday and the G20 summit, so let me reiterate that now is not that time to get greedy long. Now we need to see if the commitment to the rally remains the same. We do that by watching retracement levels. So far, the markets never retraced more than 25% of each move over the last month. We are allowed to pull in more than that and still make a new highs on the year, but the speed and trajectory can change a bit.

First S&P support is at the 200 day, but we are opening a bit below around 1274. On Thursday I mentioned we can test the 1256-1246 area and still be considered very strong. 1238 is the Fibonacci 25% retracement. This type of pullback held each time since the October 4 low.

Resistance is 1292, which was Thursday's high. The next area to potentially watch would be 1314-1316, then the the major zone would be 1343-1356.

Lots of stocks have hit historic and new highs, paying investors to hold, and some nice double digit gains across the board for some sectors and groups off the low.

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Scott Redler is long LNKD, GOOG, AAPL, TZOO. Short SPY.
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