DAILY TRADING ADVISORY 08-December-2008

arturo1

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DAILY TRADING ADVISORY 08-December-2008


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Nonfarm payrolls post a huge fall by 533,000 workers last month, the biggest drop in the last 34 years, and unemployment rate jumped to 6.7%. Automakers renew their efforts for a quick push to their bailout plan. U.S. mortgage delinquencies and foreclosures rise to record highs as prices plummet. Stocks post a huge reversal from early lows.

WEEKLY PIVOTS FOR WEEK ENDING 12-December-2008

R3 918.00
R2 895.00
R1 880.00
PP 861.00
S1 850.00
S2 826.00
S3 801.00

ECONOMIC DATA


None


WEEKLY RECAP

After posting its biggest weekly advance in the last 34 during the previous week, the equity indexes started last week with the left foot. As Morgan Stanley and Goldman Sachs saw their fourth quarter estimates earnings cut by Credit Swiss and commodities continued to fall on recession concerns and deflation fears, markets post one of their biggest sell offs. The economic data indicated additional contraction in the economy, construction spending fell 1.2% and the ISM Index posted a record low with a 36.2 reading. The recognition that the U.S economy has been in recession since December 2007 and growing concerns about consumer spending took its toll in the markets. The session ended with steep losses, the SP lost 79.50 points finishing the session at 815.75, the Nasdaq lost 91.50 and settled at 1094.50 and the Russell ended lower by 54.50 points at 418.20. The Dow sold off strongly losing 680 points finishing the day at 8149. Tuesday’s session markets consolidated the previous day huge sell off, auto and truck November sales continued its vertical fall as credit simply dried, also, GE 4Q outlook is expected to ne at the low end of its projected earnings, however the equity indexes managed to recover some of the Monday’s losses, the SP ended higher by 33.25 points at 849.00, the Nasdaq settled at 1133.00 ending up 38.50 points and the Russell finished the session at 440.90 with a 22.70 points gain. The Dow closed the session at 8419 with a 270 points gain. As volatility continued to be present on every session, wild swings were part of Wednesday’s trading session, the ADP Employment report which follows the private sector reported a 250K job losses, productivity was higher than expected but the ISM Index Services which counts for 80% of the economic activity came out at its lowest level since 1997. Later on the session the Fed’s Beige Book reported weakened economic conditions in all the regions and sectors. As markets carried on the countertrend rally, stocks managed to add some gains. The SP ended higher by 19.50 points at 868.50, the Nasdaq finished the session at 11156.00 gaining 23.00 points and the Russell settled at 453.10, up 12.20 points. The Dow closed the session at 8591 with a 172 points advance. Thursday’s reported weekly initial claims came out better than expected but factory orders that dropped another 5.10% gave traders more evidence of the shrinking economy, automakers returned to congress begging for their bailout plan, and at the last hour of trading, markets fell sharply as traders positioned their selves for the upcoming Friday monthly unemployment and nonfarm payrolls reports. Friday’s session started with big losses but well above the nightly lows as the nonfarm payrolls figures showed a huge loss of 533K jobs during November, unemployment rate also increased to 6.7% from the previous 6.5%. On the early going, the indexes made new lows but reversed strongly closing with solid gains. The SP ended higher by 25.00 points at 872.50, the Nasdaq advanced 43.00 points closing at 1173.00 and the Russell closed at 456.80 advancing 15.20. The Dow closed at 8635, up 259 points for the day.



FRIDAY’S MARKETS

After trading as high as 854.75 on the Globex session, the E-mini SP pulled back strongly reaching 836.00 before the release of the job market data. As the numbers were announced the SP pushed down to 822.00 from where it bounced back to 834.50. Just a few minutes after the opening and once the SP traded above the 835.00 area, the bounce continued reaching 841.75 from where it pulled back to the important 829.50 support level. A feeble bounce failed at 834.50 and the index drop to new intraday lows at 819.25 from where it bounced back to 827.00 just to get sold to a new low at 817.00 from where it rallied back to 828.00 posting a double top. The SP pulled back once more to the 820.00 level from where it managed to rally to my updated resistance areas at 832.00-834.00. As the rally lost its momentum, the SP pulled back to 825.50 where a double bottom gave way to another rebound that guided by the strength on the Russell pushed the SP to 838.50 from where it pulled back a few points just to get bought pressing higher and reaching 851.25 from where it pulled back to 840.00 from where it bounced back to 849.50, backed off a few points and rallied strong reaching 868.50. After making the daily highs, the SP pulled back once more to 862.00 just to rally once more to the highs where it posted a double top and sold off to 856.50 getting bought once more rallying to a new high at 871.00. After pulling back once more to our intraday support level at 861.50 the SP rallied to new highs at 874.75 and then to 877.25 as short traders ran to cover. A late pullback to 870.00 resulted in another move that continue to make new marginal highs into the close. The indexes settled a few points below their best levels of the day and a bit below fair value holding most of their gains. For the session, the SP ended higher by 25.00 points closing the session at 872.50, the Nasdaq finally showed some strength gaining 43.00 points and closing the session at 1173.00 and the Russell settled at 456.80, up 15.30 points. The Dow posted a huge reversal with more than 500 points intraday range closing the session at 8635 ending up by 259 points.



MARKET COMMENTARY AND OUTLOOK

Friday’s huge reversal and rally certainly left many trapped shorts near the lows as markets continued with the same pattern, bad economic data, and early sell off and a recovery that keep the countertrend from last Monday sell off intact. The successful test, with a higher low above the 813.00 last Monday and Tuesday’s double bottom look solid, in particular after the huge loss on the reported nonfarm payrolls. Once more, the key for this rally to continue will be further advance avoiding a sell off during today’s trading session, and by a sell off I mean a lower close, not an intraday profit taking move that is very common in a bear market.

I have been calling for a strong December, we have been watching the triangle formation on the SP and Dow’s charts, and if this bear market rally, that started last week, I can say, last Friday, will continue, then the SP should be able to test the 944.00 area during this week. The key for this to happen, after the market trades above the 900.00 level, will be two consecutive closes above the 915.00 area, if that happens, then this rally could be able to extend to the 960.00-970.00 band. At those levels, sellers may steep in strongly and probably another strong down move will start.
I have also been writing about the impact of lower crude oil prices as a deflationary condition for the economy and the stock markets, so, for this possible countertrend move to happen and get some upside legs, the commodities will have to join the up move despite the shrinking economy and the recession conditions already present in all the sectors.

All this will have to happen between Monday and Tuesday, that means we have to see some follow through of last Friday’s rally, or the markets will simply continue to built inside the triangle pattern until a clear breakout occurs.

Friday’s close left the indexes in an uptrend position, and the time that I am writing my report the futures indexes are already trading higher, once they break last Friday highs around 894.00, I will feel much better about the possibilities to continue higher. I may say that I expect a bit of resistance the first time that the SP touches the 900.00 area and the Dow reaches 8850, but the first pullback from there should be a buying opportunity, which maybe will leave an open gap to be filled during January.
So, for today’s trading session, be a buyer on the first decent pullback and look to play the long side of the markets all the time that Friday’s settlement hold, of the SP trades below it, don’t be afraid to enter long once it trades back above it, not only that, an early sell off that test my 861.50 area on the SP could be a huge buying opportunity.


TODAY’S SESSION

There is resistance at 878.50-880.00 on the SP, 1185.50-1186.50 on the Nasdaq and 459.80-460.80 on the Russell. Those area just at the Friday’s highs, so if the markets opened higher and they pullback to those areas look to get long. However if those are not traded during the day, then the market should find early support at our next levels at 884.50-886.00 on the SP, 1193.50-1194.00 on the Nasdaq and 464.10-565.60. at the moment that I am writing my report, markets pulled back there and buyers stepped back in, so if those can hold the initial profit taking, then the way is up, leaving many shorts trapped at Friday’s settlements and the next levels will be pivotal on its way to the 913.00 level on the SP.

There is good support at 866.50-865.00 on the SP, 1170.00-1168.00 on the Nasdaq and 452.80-451.10 on the Russell. If those fail look for key support at 861.00-859.50 on the SP, 1162.00-1161.00 on the Nasdaq and 445.90-451.10 on the Russell. If the trend is up those should hold and a 40 points rally from there on the SP could be seen, however, if those fail, than Friday’s rally could be a one day bear strong upside reaction from a successful test of the lows and the pullback could continue to 856.00-855.00 on the SP, 1153.50-1151.00 on the Nasdaq and 440.50-439.50 on the Russell. GOOD LUCK.




TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS
S&P NASDAQ RUSSELL
Resistance 4 896.00-897.50 1214.00-1216.00 478.60-479.70
Resistance 3 889.00-890.75 1203.00-1205.00 468.90-470.30
Resistance 2 884.50-886.00 1193.50-1194.00 464.10-465.60
Resistance 1 878.50-880.00 1185.50-1186.50 459.80-460.80
PIVOT 856.50 1151.25 446.80
Support 1 866.50-865.00 1170.00-1168.00 452.80-451.10
Support 2 861.00-859.50 1162.00-1161.00 445.90-444.80
Support 3 856.00-855.00 1153.50-1151.00 440.50-439.20
Support 4 845.00-843.50 1036.00-1035.00 435.00-433.20


S&P NASDAQ RUSSELL
FIBONACCI FIBONACCI FIBONACCI
980.63 1320.15 525.67
965.88 1299.85 516.33
942.00 1267.00 501.20
918.13 1234.15 486.07
903.38 1213.85 476.73
879.50 1181.00 461.60
855.63 1148.15 446.47
848.25 1138.00 441.80
840.88 1127.85 437.13
817.00 1095.00 422.00
793.13 1062.15 406.87
778.38 1041.85 397.53
754.50 1009.00 382.40
730.63 976.15 367.27
715.88 955.85 357.93



DAILY PROJECTIONS S&P NASDAQ RUSSELL
AS DAILY HIGH 907.25 1222.50 479.00
AS DAILY LOW 844.75 1136.50 439.40​

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