There is one view of the market that regards the whole as 2015 as one long consolidation period when the market did nothing but mark time. With the exception of the August crash and the October-November recovery, the S&P500 large cap index (SPX) has traded in an 85-point range between 2050 and 2135 for about 80 percent of the time.

The S&P 500 index (SPX) opened almost 12 months ago at 2058 and closed Friday just under 2092, galloping upward for a gain of 57 points in eleven and a half months, or an average of 0.23 per cent profit each month. This in a market described as one of the longest bulls in recent history.

According to Goldman Sachs, the S&P 500 delivered a compound annual price return of 18% during the past three years and 13% during the past five years, both well above the long-term average annual return of 5%. But that was then, this is now. As Goldman noted four months ago: “flat is the new up.”

The most important question about a consolidation range like this is not how long will it last, but what direction will it go when it ends. The SPX is likely to answer that question in the next few weeks or months.

We are sitting at the point where the market must move up if the long bull is going to continue. If it doesn’t, the pattern that will be formed will look a lot like the pattern that often marks the end of a bull: a sharp decline, followed by an equally sharp recovery that stalls at the uptrend line, then drops sharply to much lower levels. That’s what has happened to the SPX up to this point and it is making us cautious.

The timing for this is a different story. This is the best time of the year for stocks, and we’re not going to bet against Santa Claus… or against the fund managers working toward their year-end bonuses. The price action in the market at the end of last week was strong, and the quick recovery from the news-driven decline in the first couple of days shows that investors are not intimidated. We are expecting to see the buyers coming in on every dip at least in the early part of the week.

There is also the question of an interest rate increase in December. The Fed seems determined to go ahead with this, and a majority of market participants think it will happen. However, if there is a rate hike it may have less effect on the Index than expected; a lot of traders have already priced it in.

All of that suggests the market at least holds its own for the rest of the year. But once we get past Christmas and New Years, things may look different. Unless you are a short-term trader like us, we see more reasons to be out of this market than in it.

Today

For our preferred trading vehicle, the S&P500 mini-futures (ES), the strong recovery from the sharp losses early last week indicates the buyers have no fear of a retracement, and are willing to jump on every pullback. The shorts were squeezed to move the price back to where it began on Monday.

That formed a doji for the week, a sign of indecision. But a bullish engulfing candle on Friday could carry the price further up in today’s early session. Any pullback in the early sessions is likely to be bought by oversea shorts covering.

2095.50 is the first resistance line. A break above it could lead to a move to 2111, or even higher. A failure to break above it could lead ES to remain in last Friday’s upper trading range (2093-2062) today.

The 200-day sma at the 2065 area is the first major support level and expect to see buyers coming in if we get to that level. This is rollover week (when futures traders switch to a new contract) and the market may be choppy toward the middle and end of the week.

Major support levels: 2055-56.50, 2033-31, 2001-03, 1995.50-92.25, 1975-72
Major resistance levels: 2103.
75-07.50, 2114.50-16.50, 2123.50-25, 2134-35.50

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Chart:  SPX Daily chart Dec. 4, 2015

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