Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

It was another rough day for the markets where stocks opened down and steadily drifted lower all day, closing at the lows. It was red across the board with small caps, transports and the industrial sector spearheading to the downside as delays inWashington,D.C., regarding raising the debt ceiling are making investors increasingly nervous. In classic risk aversion mode, the utility stocks outperformed the rest of the market. 

The S&P 500 has now sold off somewhat more than I would have liked to see, but overall remains in a position to still push higher before the summer ends, if only barely so. The index closed yesterday a few points above 1,300, which also coincides with the recent lows on July 18, and the 61.8% Fibonacci retracement from the late June/early July rally. The index needs to hold here now and any daily close below 1,295 would seriously jeopardize a potential rally back to 1,370.

Nevertheless, if and when our representatives inWashingtonmanage to come to an agreement over the borrowing limit, I would expect a relief rally that could bring the S&P 500 to that 1,370 area or higher. I would, however, be quick and nimble in taking profits upon such a rally.  

Also just barely holding on to its near-term bullish bias are the following:

The transportation stocks as measured by the iShares Dow Transportation Average Index Fund (NYSE:IYT) is revisiting its uptrend dating back to November 2010. I pointed out the transports earlier this week, but didn’t think it would fall back down to this all important uptrend so soon. The uptrend also coincides with the rising 200-day moving average, which may give it a little extra support, but it needs to hold here.

The industrials sector as measured by the Industrial Select Sector SPDR (NYSE:XLI) and pointed out yesterday, moved right down to that super important support level near $35. It too has to hold here or risk falling much lower.

The financials as measured by the Financial Select Sector SPDR (NYSE:XLF) are again dropping toward the June lows after having looked very hopeful in last week’s rally. The XLF, too, must hold here.

And as it often does, this takes us back to looking at the chart of the U.S. dollar, today looking at the EUR/USD exchange rate. On Tuesday, the euro looked like it wanted to break out of a longer-term bull flag formation, only to then put everything in reverse yesterday and make anyone trading that attempted breakout take their stops. The dollar, too, needs to make a decision here soon. Watch this chart over coming days to get clues to where stocks might be heading in the near-term. If the EUR/USD breaks higher, it should bode well for stocks.

Stocks have now come down a little too far and really must hold current levels. Everyone is holding their breath about the debt ceiling debate, and when a decision to raise it is passed, I expect a rally. However, the lower stocks fall before a potential decision, the more short-lived that rally should be.

• See Sam Collins’ Daily Market Outlook: Politicians May Give Us an Enormous Buying Opportunity
• See Sam Collins’ Trade of the Day: Buy CNH on a Pullback
• See Serge Berger’s Trade of the Day: Two Ways to Take Aim at Target