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Minyanville's T3 Morning Market Call: Italian Bond Yields Surge, Futures Fight to Reclaim Pre-Market Losses


This week is very important. Can we hold last week's important technical levels? Will we continue to see constructive action with some of the markets leaders?

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US stock futures pointed to a sharply lower open on Wall Street a few hours ago, but have pared those losses and are now only marginally lower this morning. While Greece seems to have sorted out its mess for now, the focus has shifted to Italy, where bond yields are surging. Adding to the turmoil is unconfirmed speculation that Italian Prime Minister Silvio Berlusconi may decide to step down as he fights to keep his parliamentary majority ahead of a Tuesday budget vote. Last week's G20 summit failed to produce a grand plan to solve the European sovereign debt crisis, and it appears the continent is anything but out of the woods.

Italy's 10-year bond yield has surged to a eurozone high of 6.58%, a dangerously high and unsustainable level. Analysts believe bold action needs to be taken in Italy to stem the tide, but ECB council member Yves Mersch is quoted in an Italian newspaper saying policy makers will not consider buying Italian debt until it can get its economic restructuring house in order. At least the waters have calmed in Greece, where Prime Minister George Papandreou has agreed to step down for a unity government most likely led by for ECB Vice President Lucas Papademos.

Gold is making a comeback as a safe-haven investment after feeling heavy over the last two months. New bailouts and inflationary central banking policies have resuscitated the precious metal, which is sharply in the pre-market.

Technical Take

Last week the market suffered two distribution days, giving this powerful new uptrend its first setback. The Indices and most stocks took it in stride, considering the distance that most stocks have traveled from the October 4 lows. We held the 38.2% retracement level, giving us a new point of reference to trade against. This changed the speed of the rally but didn't derail it! This week is very important. Can we hold last week's important technical levels? Will we continue to see constructive action with some of the markets leaders?

Traders will be looking to keep it simple and limit risk. If you are going to be long stocks, you should have hedges on with the potentially explosive headlines out of Italy, a country that's economy dwarfs that of Greece. This is a very dangerous environment that even the professionals don't understand completely.

There is short-term micro support in the S&P at 1235, which was tested in the pre-market early this morning. Big support that held last week was the 1215-1218 area. The more macro line in the sand is 1185-1195. Resistance sits at 1260-1265 and then 1273.

Watch these three stocks for clues to market direction:

Apple (AAPL) is in a box. A close below $390-393 and tech could be in trouble. Above $409-$410 would be a healthy boost.

Google (GOOG) is still above its earnings gap. A close below $578-580 and this also will weigh down tech, but above $600-603 would be very positive for tech.

Goldman Sachs (GS) can be used as a proxy for banks. A break and close below $100-102 will not be good for that sector.

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Scott Redler is long AAPL, GOOG, X, LVS, JPM. Short SPY.
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