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Minyanville's T3 Morning Market Call: Market Gives Back Overnight Gains as Europe Skepticism Grows


Futures opened sharply higher this morning amid hope that European officials would finalize a comprehensive resolution to the region's sovereign debt crisis. But European markets have pulled back.

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US stock futures have given back overnight gains and are now set for a lower open to start the week. Futures opened sharply higher this morning amid hope that European officials would finalize a comprehensive resolution to the region's sovereign debt crisis. However, European markets have pulled back this morning as hopes begin to fade over the rescue package.

A strong start to earnings season provided the impetus for the rally late last week, but is likely to be overshadowed by developments out of Europe this week. Last week, the market began to price in the perfect solution, but skepticism has emerged this morning. If the region can resolve the crisis, then earnings can once again be in focus, but for the time being they should have little bearing on the proceedings. Google (GOOG) boosted the tech sector with a strong report last week, and investors will be watching Apple (AAPL) closely on Tuesday.

More earnings reports from big banks came before the bell this morning, and the results continue to be lackluster. Wells Fargo (WFC) is trading sharply lower after missing revenue expectations and only barely reaching the estimated EPS number. The sector continues to go through a retrenchment, and it seems a logical step to reduce expectations for the group going forward. Citigroup (C) beat expectations in its report, which excluded credit valuation adjustment. The stock is slightly higher following the report, but weakening.

On a technical basis, the day that jump-started this rally was Tuesday, October 4 when the market put in a bullish outside reversal day. At the time the market was extremely oversold, with short interest reaching record levels, and the reversal put bears on their heels. Smart money seemed to believe Europe had come to an understanding regarding a debt-resolution deal, and within nine days the market was 12% higher. Last Monday and Friday were also strong follow-through days, which show directional commitment.

Upside resistance for the market stands at 1235, with then heavier resistance at 1245-1255, which is the broken neckline from the Head and Shoulders pattern from late July. The 200-day moving average stands at 1276.

Support is 1215-1220, and since the rally has started the market hasn't retraced more than the 20% zone, showing extreme strength. The 1204-1206 zone would be the next level to watch, and the new line in the sand is 1187-1195.

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Scott Redler is long SPY, AAPL, and AAPL October calls
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