On Monday, hopes were dashed that Europe’s grip over the American markets was starting to loosen; instead, once again, negative developments overseas sent the Dow and S&P sharply lower.
This time - after digesting developments out of last week’s EU summit - investors decided that European leaders weren’t moving agressively enough to stem the financial crisis.
Moody's said it still expects to review ratings on all EU debt in the first quarter of next year.
"How Italian bonds and Spanish bonds are trading and how European banks are trading are the two things that drive how we open every day," says Jack de Gan, chief investment officer at Harbor Advisory Corp in a Reuters interview.
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In addition to bonds issued by European nations, money pros were watching the action in the euro , which slipped to a 2-month low against the dollar, "and broke all sorts of technical support," says strategic investor Dennis Gartman.
”US equity markets have (also) been tracking the move in the euro very closely,” he explains. “If you get a ten tick rally in the euro, then up goes the Dow. And on day's like Monday when you get a break, down goes the market.
With the market still at the mercy of Europe, how should you position?
Strategy Session with the Fast Money traders
Trader Steve Grasso suggests watching technicals. He thinks whether the market bounces or breaks at 1228 will be telling. That’s because 1228 is a key Fibonacci level, the long term retracement level from the 1576 highs to the 666 lows.
”If we pierce 1228 it looks like the 50-day (at 1220) poses some resistance but then 1200 may be all but written in the cards,” he says
Traders Steve Cortes and Steve Weiss largely agree. In addition to technicals, both think fundamentals are too precarious for stocks to rally.
“I expect to see Europe go into recession if not depression,” says Cortes. "Investors have no choice but to bet against risk."
And looking at the correlation between the euro and the S&P, Weiss adds “I expect the euro to go to par with the dollar. Overall the trend in the S&P is down.”
Traders Zach Karabell and Brian Kelly are more optimistic. “When the market can get over the euro overhang there are good reasons for equities to move higher – but we’re not there yet,” Karabell says.
If you agree with Karabell, then sell-offs present buying opportunities. “I’m looking for companies that are doing well – but I’m investing for the year, not the next 2 or 3 weeks.”
Trader Brian Kelly says much the same. “– I’m long US stocks,” he says, but he’s playing the thesis long IWM because smaller companies have less exposure to European markets.
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Trader disclosure: On Dec 12, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Kelly is long IWM; Kelly is long LNG; Kelly is long EUR; Kelly is long CHF; Cortes is long; Cortes is long Treasuries; Cortes is long INTC; Cortes is long SVU; Cortes is long TSN; Cortes is short; Cortes is short AUD; Cortes is short EUR; Cortes is short GBP; Cortes is short AAPL; Cortes is short DB; Cortes is short Crude; Grasso owns ASTM; Grasso owns AVAV; Grasso owns BA; Grasso owns D; Grasso owns LIT; Grasso owns MHY; Grasso owns PFE; Grasso owns PRST; Grasso owns S; Grasso owns XLU; Weiss owns EUO; Weiss owns JPM; Weiss owns QCOM; Weiss owns HPQ; Weiss owns GM
For Steve Grasso
Stuart Frankel & Co and its partners own CSCO
Stuart Frankel & Co and its partners own CUBA
Stuart Frankel & Co and its partners own GERN
Stuart Frankel & Co and its partners own HPQ
Stuart Frankel & Co and its partners own HSP
Stuart Frankel & Co and its partners own HSPO
Stuart Frankel & Co and its partners own MET
Stuart Frankel & Co and its partners own MU
Stuart Frankel & Co and its partners own NYX
Stuart Frankel & Co and its partners own PRST
Stuart Frankel & Co and its partners own RDC
Stuart Frankel & Co and its partners own UAL
Stuart Frankel & Co and its partners own XRX
For Simon Baker
Simon Baker OWNS Abbott Labs
For Urs Dur
Lazard Capital Markets LLC makes a market in FDX securities.
Lazard Capital Markets LLC makes a market in UPS securities
For Mark Fields
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Investment banking (next 3 months): BGC Financial LP and/or its affiliates, expect to receive, or intend to seek, compensation for investment banking services within the next three months from all of the companies referenced within this report.
Lead or Co-manager: BGC Financial LP and/or its affiliates, has not acted as lead or co-manager in a public offering of equity and/or debt securities for Amazon within the last 12 months. BGC Financial LP and/or its affiliates has not received compensation for investment banking services in the last 12 months from Amazon.
For Dennis Gartman
Gartman is short Euro
Gartman is long equities
For Craig Berger
FBR acts as a market maker or liquidity provider for the company's securities: INTC.
CNBC.com with wires.