DAILY TRADING ADVISORY 22-December-2008

arturo1

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DAILY TRADING ADVISORY 22-December-2008

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Automakers to get $17.4 billion in a temporary bailout plan. Paulson ask congress for the release of the additional $350 billion of the TARP funds. SP downgrade more than 8 banks including Goldman Sacks, Deutsche Bank and UBS. Markets fluctuate giving back early gains.

WEEKLY PIVOTS FOR WEEK ENDING 26-December-2008

R3 930.75
R2 914.25
R1 898.00
PP 885.25
S1 875.50
S2 864.00
S3 847.00

ECONOMIC DATA

8:30 AM NY Empire State Index
9;00 AM Net Foreign Purchases
9:15 AM Capacity Utilization
9:15 AM Industrial Production

WEEKLY RECAP

Great events but not too much change from the previous week on the U.S. equity markets. Monday’s trading session started with the release of the economic numbers, the NY Empire State Index reported better than expected but Industrial Production came out lower by .6%, a third consecutive month showing contraction on the manufacturers sectors. Apple was downgraded and the technology stocks were under pressure most of the session, the SP lost 13.25 points and settled at 872.25, the E-mini Nasdaq ended the session at 1195.00, minus 20.00 points and the Russell lost 14.80 points closing the session at 455.20. The Dow lost 65 points, closing at 8564. Tuesday’s expectations were concentrated on the FOMC meeting, rate decision and policy statement attracted trader’s attention. The session started with Goldman Sacks reporting slumping earnings and revenue, Best Buy came out better than expected. On the economic data, CPI came out lower by 1.7% indicating continued pressure on prices and deflation; also, Housing Starts continue to decline, a new record low. Later in the session, Federal Open Market Committee (FOMC) cut the fed funds target rate from 1.00% to a range of 0.00% to 0.25%. In addition, the Fed could be buying a lot of long-term Treasury securities on order to reduce the long term rates. The markets reacted well to the news and shorts run to cover pushing prices up to their previous week highs. The SP closed at 912.75 after gaining 40.50 points for the session, the Nasdaq ended the day at 1241.00, up 46.00 points, and the Russell finished at 479.00 gaining 23.80 points. The Dow ended the trading session at 8924 with a huge 359 points gain. Wednesday’s session showed a narrow range as markets consolidate the previous move. Morgan Stanley came out with a wider than expected loss and GE lowered its outlook. Additional details of the Bernard Madoff fraud attract the investor attention. In addition S&P downgraded more financial institutions. The OPEC meeting in which producers reduced crude production didn’t stop the commodity price collapse and the automakers story continued with Chrysler and Ford idling factories. For the day, the SP lost 9.50 points closing the session at 903.25, the Nasdaq gave back 12.50 points and settled at 1228.50 and the Russell ended up by 4 points at 483.00. The Dow lost 99 point at 8824. Thursday’s session started with a positive opening as President elected Obama unveiled that he could go for an ambitious $850 billion stimulus plan. Initial jobless claims came out a bit lower but the Leading indicators and Philadelphia Fed numbers continued to indicate that the economy is in deep problems and free fall. Markets reacted negative and sold off during the session but the futures contracts managed to come back and close above fair value, the SP ended lower by 11.00 points and settled at 892.00, the Nasdaq lost 3.00 points ending the session at 1225.50 and the Russell finished higher by 2.50 points at 485.10, all of them well above fair value. The Dow lost 219 points closing at 8604 but the Dow futures contract lost only 96 points. Friday, December option expiration, started with a positive sentiment after President Bush ordered to lend $17.4 billion from the TARP funds to Chrysler and Chevrolet, however the early enthusiasm vanished during the session as the early attempts to push the indexes higher failed to gain the necessary momentum, the SP lost 11.25 points and settled at 881.25, the Nasdaq ended lower by 14.50 points at 1211.00 and the Russell closed unchanged for the day at 484.00. The Dow gave back early gains finishing the session at 8579, minus 25 points.


FRIDAY’S MARKETS

Markets started the session with the news that President Bush came with a $17.4 billion loan for automakers. The SP started the session at the 890.00 area and pushed up to 904.75 where the bounce lost the necessary momentum to move higher. The SP backed off to the 887.00-886.00 support area, after holding the pullback a steady rally pushed the indexes up, the SP reached our resistance level at 902.00 leaded by the strength on the Russell which actually made a new high for this move just above the December 10th high. As the SP continued to hold around the 900.00 it finally popped up to a new high at 903.50 where the rally stalled. The SP pulled back all the way to 894.25. After trading for a while in a narrow range, the SP pushed lower to 883.50 where the index held and bounced to 887.75, backed off to 884.00 and bounced higher reaching 889.75 where the bounce ended and held for a while. After spending some time holding near the intraday highs the SP broke higher reaching the 894.00 level. Once the indexes tested their resistance areas, and with the lack of momentum in the Nasdaq to break higher, the SP backed off to 887.75, bounced to 892.00 and moved lower testing 885.00 from where markets rallied once more with the SP reaching 892.00 and the Nasdaq testing the “break or made” level at 1226.50. After failing to break higher, the SP fell back to 885.00, bounced to 887.75 and pushed lower to 880.00 at our support areas. During the last half hour of the regular trading session, the index traded on a narrow range between the 886.00 area and 882.00. After the regular markets closed the SP made a new low at 876.50 but bounced immediately closing the session above the 880.00 mark. For the day, the SP lost 11.25 points and settled at 881.25, the Nasdaq ended lower by 14.50 points at 1211.00 and the Russell closed unchanged for the day at 484.00. The Dow gave back early gains finishing the session at 8579, minus 25 points.



MARKET COMMENTARY AND OUTLOOK

Last Friday I wrote: “Yesterday’s session started with relatively small trading volumes and continued to consolidate the last rally, the highs were done during the Globex session and the indexes managed to hold the first half of the trading session. The Russell printed a double top on the daily charts signaling a top for this move. Later the markets simply collapsed in a move that could be related to option expiration, but in fact, the markets failed to break above the recent resistance areas. I still believe in my “Christmas dream” and I still consider that my expected “Santa’s” rally will happen, but I also have been writing that this countertrend rally was not due to be a vertical rally and that it will be just a huge selling opportunity, however, if this rally won’t happen, then the markets are weaker then I thought and will indicate that Santa has been another victim of this bear market. Yesterday’s late rebound and close above fair value, even if it could be also related to the December expirations may have trapped many shorts at the lows, so I will give another chance for this seasonal bullish scenario to happen during the coming sessions. It seems to me that yesterday’s sells off ended the some short term extremely bullish scenario where all the bad news and early sells offs resulted in a daily come back and now the markets could finally push a bit higher in this struggling rally. However, predicting direction for today’s session is a bit tricky and if the SP traders lower once again and the Dow breaks the 8500 area we could see more selling to close the week. Conclusion, yesterday’s reversal from resistance levels should be met with another attempt to move higher, if not today then next week, but another strong negative session could be seen before that happens.”

Friday’s early rally and failure to hold gains, the late sell off that repeats Thursday’s session last hour of trading and the reversal that the bullish Russell has been showing, despite the new marginal highs on this index, may look as our expected holiday’s rally could be in jeopardy, and could indicate that we probably will continue to trade on a wide range and a higher breakout is not possible at this moment. However, if we take into consideration that the markets have been able to hold, this struggling rally still has the chances to move higher in the short term and finally reach our upside objective. Friday’s trading session where the December expiration took place, the weather conditions that kept the trading floors empty and the seasonal low volumes (Friday’s volumes were high due to the expiration) and lack of interest present at this time of the year, does not confirm yet the present pattern as a failure to try and move higher, but as natural circumstances of this time of the year. I have not lost yet my expectancies to see the SP reaching 940.00-960.00 before the end of the year; markets may be ready to make the move. After last Tuesday Fed’s rally, the indexes have continue to consolidate, and even if the rallies attempt have failed, the sell offs have been limited and the markets have been able to hold above key support levels. However, the lower highs and double tops on the daily charts with the indexes honoring their resistance levels could result in a suddenly sell off that could push the indexes lower before a sustainable bounce is seen.

The last two session we have seen strong openings and late selling, if this pattern fail to repeat during today’s trading session, that means that markets start weak and get reversed above last Friday’s settlements, or the early rally manage to hold into the close, then something may be changing and we could be on the way to my expected upside move, so I won’t feel disappointed if we get a good sell off during the first 60-120 minutes of the session and then markets break higher. That means that last week lows could be tested, if the indexes manage to come back and trade higher, they should be able to move higher, if the markets can not post a positive session during the first two days of the week, then the way will be open for another test of the 820.00-800.00 levels.

Take into account that this holiday week volumes will be lighter as time passes, Wednesday is a half trading session, Thursday markets are closed and probably not too many traders will come to work on Friday, so try to enjoy this Christmas season.
Every year, I warn day traders about trying to force trades during the last two weeks of December. During holidays, trading conditions and volumes are so thin, that even if apparently the trading patterns look as every other day, they are not build in the same way, markets do not react to support and resistance levels as they normally do. On a day trading base, if the SP opens higher look for good resistance near the 890.00 area, if that level gets exceeded without turning down, shorts may start to cover. A good sell off that test the 873.50-872.00 areas and hold could be a buying opportunity, in particular once the SP trades back above the 881.00 area, keep watching the Russell that apparently has been leading the markets for the last few days.

TODAY’S SESSION

There is resistance at 883.00-884.00 on the SP, 1214.50-1216.00 on the Nasdaq and 487.30-489.00 on the Russell. If those get exceeded look for strong resistance levels at 888.50-889.50 on the SP and 1224.00-1225.00 and 4903.90-494.00 on the Nasdaq and Russell respectively. The SP showed weakness below those levels during the last sessions, and the Russell has been reversed from levels near those areas, so for the markets to continue higher, those will have to get exceeded with good momentum. If the rally fails there look for another wave of selling, but if those are not a problem, then look for the markets to make another push higher to 893.00-894.00 on the SP, 1230.00-1232.00 on the Nasdaq and 498.10-499.20 on the Russell, once the indexes trade beyond them, the way for a strong rally will be open.

There is support at last late Friday’s lows at 878.50-876.00 on the SP, 1207.00-1205.00 on the Nasdaq and 480.70-479.10 on the Russell. If the markets open below those areas, bears will be in control and a test of the next areas at 873.50-872.00 on the SP, 1200.25-1198.00 on the Nasdaq and 476.00-475.20 on the Russell is probable. If those levels hold, look for a good short covering rally, but if buyers don’t step in there, then 866.00-865.00 on the SP, 1194.00-1193.00 on the Nasdaq and 472.50-471.80 on the Russell could be visited. Those levels are very important on the Nasdaq, so if the downside move loses its momentum near those levels look for a strong rally. GOOD LUCK.



TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS
S&P NASDAQ RUSSELL
Resistance 4 898.25-900.00 1248.00-1250.00 502.20-503.90
Resistance 3 893.00-894.00 1230.00-1232.00 498.10-499.20
Resistance 2 888.50-889.50 1224.00-1225.00 493.90-494.00
Resistance 1 883.00-884.00 1214.50-1216.00 487.30-489.00
PIVOT 887.00 1219.25 485.90
Support 1 878.50-876.00 1207.00-1205.00 480.70-479.10
Support 2 873.50-872.00 1200.25-1198.00 476.00-475.20
Support 3 866.00-865.00 1194.00-1193.00 472.50-471.80
Support 4 860.00-858.50 1188.00-1186.00 469.70-468.40


S&P NASDAQ RUSSELL
FIBONACCI FIBONACCI FIBONACCI
947.19 1284.27 525.02
940.81 1277.48 520.78
930.50 1266.50 513.90
920.19 1255.52 507.02
913.81 1248.73 502.78
903.50 1237.75 495.90
893.19 1226.77 489.02
890.00 1223.38 486.90
886.81 1219.98 484.78
876.50 1209.00 477.90
866.19 1198.02 471.02
859.81 1191.23 466.78
849.50 1180.25 459.90
839.19 1169.27 453.02
832.81 1162.48 448.78



DAILY PROJECTIONS S&P NASDAQ RUSSELL
AS DAILY HIGH 892.25 1224.50 499.00
AS DAILY LOW 865.00 1195.00 481.00



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