Is S&P Flashing Critical Sell Signals?

On Monday chatter on the Street again had everything to do with whether Europe's financial woes would push the US off the side of a clip.

The S&P traded sharply lower and the Dow slipped by triple digits after a budget drafted in Greece showed Athens would miss its deficit targets for both this year and next despite harsh new austerity measures.

The developments brought the potential of a Greece default that much closer. "If Greece continues to have problems that could really drag Europe into recession, and possibly the U.S. as well," explains Randall Warren, chief investment officer of Warren Financial Service in a Reuters interview.

However, that’s not to say there aren’t any positive catalysts in the market. There are.

The Institute for Supply Management's September manufacturing index topped consensus forecasts and the government said August construction spending unexpectedly rose.

"The data supports the minority view that things are going to get better," Warren says. "You can't discount that view even as the market finds it hard to believe, and that's why things are so choppy today."

How should you trade now?

In an environment like this, The Fast Money gang suggests watching technicals. They say the market is flirting with a number of key levels and whether the market bounces or breaks could be very telling.

”I’m watching 1120 on the S&P,” Fast trader Pete Najarian tells us .“It’s been a level of support over the summer. ”If it holds we’re ok, but if we break below it all bets are off.”

Trader Steve Grasso is focused just a little lower. He thinks the market is looking to test 1101. And he tells us the test could come in the next couple of days. And like Najarian, whether it holds or breaks will influence his trades.

Katie Stockton, chief market technician at MKM is also watching the same levels. However her bias appears to be lower.

”September was important – we got an important technical signal,” she tells us in a live interview. “

Stockton is referring to something called the MACD Indicator and although it involves somewhat complex technical analysis, the take away is that it has flashed its first sell signal since Dec 2007.

The last time it happened the signal was very prescient. “The December 2007 signal was a precursor to a decline of more than 30% in the S&P,” she tells us. This time she thinks it could be a sign that the S&P slides by another 150 points.

How will you know if the market is about to break in a big way?

Watch 1100, that same level that’s held all summer. “If the market breaks below that level on consecutive weekly closes, then we’re setting up for a prolonged fall,” Stockton says. “Then we’re setting up for 935.”

And it’s not just Stockton who sees that kind of giant swing on the horizon. According to Pete Najarian the action in the Vix suggests big swings are likely – however he says the swing could come in either direction.

Only one thing’s for sure - “There’s a lot of risk and uncertainty coming into the market,” he says.



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Trader disclosure: On Oct 3, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders;

Pete Najarian
Najarian is long (AAPL)
Najarian is long (C)
Najarian is long (MS)
Najarian is long (MRVL)
Najarian is long (HPQ)
Najarian is long (WLT) calls |
Najarian is long (YHOO) calls

Steve Grasso
Grasso owns AKS
Grasso owns AKS
Grasso owns ASTM
Grasso owns BA
Grasso owns BAC
Grasso owns D
Grasso owns LIT
Grasso owns MHY
Grasso owns PFE
Grasso owns PRST
Grasso owns S

For Steve Grasso
Stuart Frankel & Co and it’s partners own CSCO
Stuart Frankel & Co and it’s partners own CUBA
Stuart Frankel & Co and it’s partners own FDX
Stuart Frankel & Co and it’s partners own GERN
Stuart Frankel & Co and it’s partners own HPQ
Stuart Frankel & Co and it’s partners own HSPO
Stuart Frankel & Co and it’s partners own JPM
Stuart Frankel & Co and it’s partners own MET
Stuart Frankel & Co and it’s partners own MSFT
Stuart Frankel & Co and it’s partners own MU
Stuart Frankel & Co and it’s partners own NYX
Stuart Frankel & Co and it’s partners own PFE
Stuart Frankel & Co and it’s partners own PRST
Stuart Frankel & Co and it’s partners own RHT
Stuart Frankel & Co and it’s partners own SDS
Stuart Frankel & Co and it’s partners own UAL
Stuart Frankel & Co and it’s partners own XRX
Stuart Frankel & Co and it’s partners are short QQQQ

Steve Weiss
Weiss owns (HPQ)
Weiss owns (EUO)
Weiss owns (WLP)

Zach Karabell
Karabell owns (JPM)
Karabell owns (AAPL)
Karabell owns (FCX)
Karabell owns (GOOG)

For Zach Karabell
Rivertwice Capital is short (XLF)
Rivertwice Capital is short (AA)
Rivertwice Capital is owns (PDN) puts
Rivertwice Capital is owns (HPQ) calls

Katie Stockton
Katie Stockton of MKM Partners, has a position in (UUP)




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