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Technical Trouble: S&P Breached 1340

Monday, 14 May 2012 | 6:51 PM ET

In an uncertain market, the Fast pros often say watch the technicals. And the technicals suggest the market is at an inflection point.

First the bad news: On Monday the S&P breached a key level, closing below 1340.

That's a big deal because 1340 had generated strong support. “We protected 1340 a couple times,” explains trader Steve Grasso.

Now the good news: The breech isn't that bad. The S&P closed at 1338.

Now what?

Trader Steve Grasso says what happens next should be very telling.

If the S&P continues its decline ‘it gets slippery,’ he says. “1305 is the next key level and below that, it's flat on year or 1257,” he says.

Looking at historical trends in the market, Grasso can’t help but wonder if the current decline is a sign the market is going to 1257. “If we don’t test flat on year – it will be the first time in 33 years that we haven’t done that,” he says.

Grasso's not inclined to believe this year is the exception to that rule. “If the S&P can’t hold 1340, I’d buy the SDS, ” he says.

Fast Money, May 14, 2012
CNBC's Melissa Lee and the Fast Money traders discuss the day's top trades and the stocks they'll be watching tomorrow.

Trader Guy Adami shares Grasso’s long-term outlook, but in the near term he wouldn’t be surprised to see 1340 (ish) hold.

“If we get a decent headline out of Europe I can see the S&P climb 20-handles but I’d sell the strength,” he says. “I don’t see a compelling reason to buy unless the S&P closes above 1375.”

Trader Josh Brown agrees. "I’d sell the rips and not buy the dips.”

However, Brown isn’t entirely negative. “The good news is that stocks are still relatively cheap and if the market sells-off sharply, value investors will probably step in,” he says.

That should generate a floor.

As a value investor Karen Finerman confirms that she's getting a shopping list ready.

“I like CVS,” she says, “and I bought JPMorgantoday despite the controversy. At this level JPMorgan is trading right above tangible book – there is definitely value in the market.”

Posted by CNBC's Lee Brodie




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Trader disclosure: On May 14, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU; Brian Kelly is long WFC; Brian Kelly is long USG ; Brian Kelly is long T; Brian Kelly is long VZ; Brian Kelly is short SWEDISH KRONE; Karen Finerman is short AAPL; Karen Finerman is long BAC; Karen Finerman is long JPM; Karen Finerman is long WMT; Karen Finerman is long TGT; Karen Finerman is long RIMM; Karen Finerman is long HPQ; Karen Finerman is long GRPN put spread; Karen Finerman is short SPY; Karen Finerman is short IWM; Karen Finerman is short MDX; Steve Grasso is long ASTM; Steve Grasso is long AVAV; Steve Grasso is long BA; Steve Grasso is long D; Steve Grasso is long FRO; Steve Grasso is long LNG; Steve Grasso is long MHY; Steve Grasso is long NUAN; Steve Grasso is long MO; Steve Grasso is long PFE; Steve Grasso is long S; Steve Grasso is long XLU; Steve Grasso is long ZAZA

For Scott Nations
Scott Nations is long SPY
Scott Nations is long BAC
Scott Nations is long C

For Amelia Bourdeau
Nothing to disclose

For Clayton Moran
Benchmark makes a market in the securities of the subject company: GRPN

For Herman Leung
Nothing to Disclose

For Larry McDonald
SFG is a market maker in the securities of GRPN

CNBC.com with wires.

  Price   Change %Change
S&P 500
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CVS
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JPM MLP ETN
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SDS
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  • Chief Market Strategist for Virtus Investment Partners & CNBC Contributor

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