Markets continue to whip as debt negotiations stall

By this point it is cliched, but also accurate, to say that US debt ceiling negotiations are driving the markets. Events in the European Union, such as Greece's downgrade by Moody's last night, are now merely an afterthought to global traders--at least for the time being.

This morning the S&P 500 opened sharply lower as "bi-partisan" negotiations seemingly broke down over the weekend. But within 20 minutes of the opening bell, the S&P 500 easily started its climb back up to Friday's close at approximately 1345 on the SPX.

Market whips continue on the SPY 10 min chart

The day's rally lasted until midday, when the market topped at the gap-fill and started to decline, this time accelerated as US Republicans and Democrats traded barbs and publicly rejected each other's proposal. The drop continued for the rest of the session, with the SPX closing at 1337.43--more or less flat on the day.

Right now, the pattern on the daily SPX chart is the beginnings of bullish consolidation--a move up followed by several days of sideways trading within the range of the initial up-move. The longer we see sideways trading, the more likely that we eventually trade higher and approach the daily double top at 1370. This pattern confirms my suspicion that if a a debt resolution manages to pass the House and the Senate, the markets will rally as a sign of relief. And please note that the market does not care if it's a Republican or Democratic plan that passes, as long as this uncertainty comes to a timely end.

I have every confidence that a deal will pass by the deadline--to do otherwise without a contingency plan would be political suicide for all parties involved, not to mention the collateral damage to financial markets.

Going into the rest of the week, continue to follow the charts and consider news events only as a means of understanding the intraday whips of the market. We're still in an uptrend, though admittedly extended on the charts, and will remain so until we either hit resistance on the way up or break back to the downside. In the meantime, expect the whips and saws to continue until there is some sort of resolution.

Monday Market Summary

Today the markets saw some sharp selling as European and US debt fears continue to irk traders. The SPY opened at 131.08 and fell as low as 129.63 before recovering to close at 130.61.

Big drop and nice recovery on SPY 10 min

Despite this selling, I continue to hold a slight upside bias for the short term. I think the markets are currently oversold and that the debt fear premium has been priced in for the most part already. The SPX broke the daily 20 moving average but still should have some short term support at the 61.8 Fibonacci retrace.

Good bounce off 61.8 fib on SPX daily

I still continue to hold a small position short the SPY via the HSD.to 2x ETF, as well as another small short in FTS.to. On the long side, I have a position in GIL.to based on the hit of the double bottom at 31.79 and another position in PG based on bullish consolidation above the 20 moving average.

Going forward into the week, I'll be watching the news and futures closely pre-market and after-hours. Debt negotiations in the US have overshadowed issues in Europe for the time being and traders are watching it with full attention. The market has priced in a lengthy, last minute agreement between Republican and Democrats which means an early resolution will cause a rally and no resolution will cause a fall. No debt resolution is a very unlikely scenario, in my opinion.

Tonight I'll be scanning for long setups in the event that we bounce as I expect we will. If we break lower, I'll simply look to buy stocks at the next set of levels down on the charts.

Monday Market Summary

Today the markets opened sharply lower again after debt fears in Europe resurfaced during overnight trading. The latest worry is that Italy will be the next country to be downgraded and/or default.  

The SPY opened this morning down $1.65 at 132.75 and went as low as 131.91 before getting a bounce back up to 132.50. From there the SPY traded back down and briefly touched 131.84, breaking the intraday double bottom and getting another small bounce. The SPY then traded lower again, hitting 131.66. From there the market traded mostly sideways for the rest of the day as is typical after a big move in any direction.

SPY 10min traded down for the majority of the day

These European debt issues are and will continue to be a serious issue for the markets, but the fact remains that the major stock indices are severely overbought and overdue for a correction. As long as this remains the case, any news the markets interpret negatively will cause them to sell.

Technically speaking, a second down day in a row after such a big rally during the past two weeks is significant as it tells me we're definitely in a short term correction. The question now is how much more downside can we expect in the short term.

The 132 area is the first level of major support. This was the breakout area before the massive follow-through rally that began the week before last on Friday. Just below here at 131.50 is the 50MA on the daily chart. As long as the market can hold this area, it's possible that we bounce and recover, but if it breaks we may have a more serious correction at hand.

SPY daily will have support at dotted blue lines, resistance at double top

I'll be watching these levels closely this week. Hopefully after a few more days of trading we'll have a better idea of which levels are going to be good for an extended move, either long or short. Until then, especially during options expiration week, I expect to see whips up and down. Weeks like this make swing trading difficult and is better suited for shorter term day trading.

Keep checking back here for daily updates and follow me on twitter for my thoughts throughout the day.