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Minyanville's T3 Morning Market Call: Europe, US Debt Woes Send Market to Lower Open


US stock futures point to a sharply lower open on Wall Street Monday as the congressional super committee looks set to announce it was unable to reach a deficit-reduction.

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US stock futures point to a sharply lower open on Wall Street Monday as the congressional super committee looks set to announce it was unable to reach a deficit-reduction. Deep differences of opinion over tax and spending reforms made it impossible to strike a compromise, and this defeat will mark another market-negative catalyst from our Federal government. A long impasse over the debt ceiling, in which a faction of representatives started serious default rhetoric, triggered the market's steep decline in July.

In addition, the situation in Europe is not getting any better. France seems to teeter close to a credit downgrade, with Moody's explicitly stating that rising interest rates on government debt could impact the country's AAA rating. Spain has also seen borrowing costs rise sharply, and the new prime minister is under pressure to make severe economic reforms. Prime Minister elect Mariano Rajoy's center right party scored the country's biggest election victory in 30 years, with a mandate to pull the troubled economy out of the gutter.

The third strike for the market today came from Chinese Vice Premier Wang Qishan, who warned that the global economy is in dire straits. China has shown reluctance to participate in funding of the European rescue fund, even though it sees economic calamity on the horizon.

This is also a holiday week, which adds to the uncertainty. Trading volume is typically light on a holiday-shortened week. A thin tape could contribute to greater market volatility.

In merger news, Pharmasset (VRUS) jumped 86% after Gilead Sciences (GILD) agreed to buy the drug company for $11 billion in cash. Alleghany Corp (Y) also agreed to buy Transatlantic Holdings (TRH) at a 10% premium to its current share price.

Technical Take

Last week was gut check time for the market, and it broke down at the lower end of the wedge pattern. In the markets there is no need to be a hero and blow up an account fighting the wrong side of the trade. The S&P failed at the 1260 area for the third time in that afternoon and then reversed hard to put the wedge in motion to the downside. This was the same day IBD put the Big Picture of the market back in correction!

Depending on style, some traders sold longs while others got aggressively short. I did not go short except in oil, through the inverse oil ETF (SCO). These are fast markets and dangerous times, with even professional market participants at a loss of for answers and solutions.

S&P futures are opening at an area that held multiple times in early October. Those not obeying stops last week will probably be hitting out longs today. Those who are coming in flat can look to see if there is a trade or a buyable setup in the 1187-1195 Area. Macro longs may try to protect this area, so it's worth a look. The next support level to watch is the pivot at 1168-1175. Next would be the 10/10 support from 1158-1162.

If the market reverses and tries to use today as a (Day 1) Resistance Should at the 50-day moving average we are gapping through 1205-1207. Beyond that is 1218-1222

When you get gap downs like this, traders watch to see if any stocks can go green. If any groups can help lead the indices off the lows. This will help guide us to whether we can reverse today and fill some of this downside gap. If we don't fill gap in the first hour or so it can turn into a trend down day.

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