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Grasso: Heed Technicals Over Fundamentals Amid Sell-Off

On Thursday investors again ran for the exits amid escalating fear about the economy.

The rampant selling in the stock market has now pushed the S&P into correction territory with the index paring more than 10% of its value since the May 2nd high of 1370.

And that has triggered a key question among investors - should you trade with the trend or sift through the carnage for bargains.

If your instinct is to go bottom fishing right now – trader Steve Grasso thinks you’ll be sorry.

Although your knee-jerk reaction may be to look for stocks that have strong fundamentals and now appear oversold – Grasso thinks going long on fundamentals is a dangerous game – because of the technical action.

FMHR-SandPtechAmidSellOff.jpg

”The market defended the 1233 level earlier in the week, (10% from the 1370 high) – but today we broke it – we retested it and broke it,” he says.

That's a bearish technical sign. But that's not the only bearish sign.

Also, the S&P has violated the 100-day moving average, which you can see from the chart above and it's generated something technicians call a 'head and shoulders pattern' - another bearish sign. (Click here to go to Scary Chart Pattern Suggests More Selling on the Way.)

Ontop of that, the market also violated 1227 intraday, a key level because it was the November 2010 high. That level was once resistance and should have held as support - the break is meaningful.

"Frankly, you have to look pretty hard to find anything technically that looks constructive," says John Kosar, director of research at Asbury Research in a Reuters interview.

We know there are a lot of numbers above – and they’re rather confusing. But technicals matter more right now because “you can do all the fundamental analysis in the world but even if your stock looks good fundamentally it can easily get caught in the downward trend," explains Grasso.

"In fact 70% of all stocks trade with the over all tend. That’s why this matters," he says.

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THE RACE TO THE BOTTOM

The desk is also watching the early stages of what could become global currency wars. Japan just intervened to weaken its currency, and the Swiss cut interest rates yesterday to try and rein in the Franc.

What should you make of these developments? Find out from Rebecca Patterson. Watch the video now!




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Trader disclosure: On Aug 4, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Cortes owns (WMT); Cortes owns (PM); Cortes owns (KFT); Cortes is short (LULU); Cortes is short (AAPL); Cortes is short (LVS); Cortes is short Silver; Cortes is short EUR; Steve Grasso owns (AMD); Steve Grasso owns (ASTM): Steve Grasso owns (BA); Steve Grasso owns (BAC); Steve Grasso owns (C); Steve Grasso owns (D); Steve Grasso owns (JPM); Steve Grasso owns (LIT); Steve Grasso owns (LPX); Steve Grasso owns (LVS); Steve Grasso owns (MAR); Steve Grasso owns (MHY); Steve Grasso owns (NDAQ); Steve Grasso owns (PFE); Steve Grasso owns (PRST); Steve Grasso owns (UAL); Steve Grasso owns (XHB); Steve Grasso owns (XLB); Steve Grasso owns (XLI)

For Brian Kelly
Accounts Managed By Brian Kelly Capital Own (TLT) calls
Accounts Managed By Brian Kelly Capital Own (GLD) calls
Accounts Managed By Brian Kelly Capital Own (SLV) calls
Accounts Managed By Brian Kelly Capital Own (VIX) calls
Accounts Managed By Brian Kelly Capital Own (SDS)
Accounts Managed By Brian Kelly Capital are short (UGA)
Accounts Managed By Brian Kelly Capital are short (JJC)
Accounts Managed By Brian Kelly Capital are short the Euro
Accounts Managed By Brian Kelly Capital are short the Swiss Franc

For Steve Grasso
Stuart Frankel & Co and its partners own (AAPL)
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 (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 (PFE)
Stuart Frankel & Co and its partners own (PRST)
Stuart Frankel & Co and its partners own (SDS)
Stuart Frankel & Co and its partners own (UAL)
Stuart Frankel & Co and its partners own (XRX)
Stuart Frankel & Co and its partners are short (QQQQ)

Rebecca Patterson
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