European Headlines Drive Markets Again

The enthusiasm over the European debt deal was clearly over blown and following 4 straight weeks of gains, an overbought market has finally exhaled a bit.

Resistance held in the upper 1200s on the ES (as expected) and market sees nice decline to begin the week. ES down over 5% from Thursday's highs and is now hitting solid support in the 1208-1215 range. This is definitely a price-point to consider taking profits from any short positions. I like longs down here in the 1208-1212 range. But I'm not overly enthusiastic yet as concerns in Europe are forcing a risk-off mentality. Be careful defending any long positions as sentiment remains negative

A close below 1209 would be very weak and suggest further downside.

News influencing the current decline:

Greek Prime Minister Papandreou calls for Voter Referendum on EU Debt Deal forcing uncertainty over the legitimacy of the EU Bailout.

Italian bond yields soar to 6.1% bringing them back to levels seen in August when the ECB intervened. Looks like they have to intervene again?

China Purchasing Managers' Index (PMI) lowest since early 2009. You can blame this on weak European and US economies. A perfect illustration of the contagion effect on what is really a global economy.

I like the potential for a short-term rally down here off 1210 on the ES. However, we must be careful amidst the market negativity. The headlines out of Europe can make this 1210 support meaningless.