Today marks day 15 of the current rally in the U.S. equity markets and the action the past three days is suggesting that this rally may be running out of steam. The December E-mini S&P chart in particular seems to be indicating that we are still rangebound and that the markets are merely testing the upper boundary of the range.
Technically, the market has stalled in front of the early August top at 1122.00 and the late June top at 1124.50. All of this is taking place inside of the retracement zone of the 1208.00 to 998.75 range at 1103.25 to 1128.00.
The chart pattern appears to be fairly easy to analyze. On the upside, a breakout over 1128.00 is likely to generate enough buying interest to trigger an acceleration to the early May top at 1160.75. On the downside, a break under the 50% level at 1103.25, is likely to hold the market in a range while forcing a correction back to 50% of the current rally to 1060.75.
Traders will be watching this morning’s Weekly Initial Claims report for direction. The consensus this week is 460K, but the range is 440K to 480K. Last week’s number at 451K was better than expected, triggering a rally in stocks. A reading of 500K or higher will be bearish.
Recent reports have been relatively high, but traders have been seeing a silver lining in the numbers because of the slowdown in the amount of claims each week. A positive trend may be developing but it looks like it is going to take a number under 440K to truly get the market excited.
Today’s Producer Price Index is expected to be 0.3%. This will be slightly higher than the previous reading at 0.2%, but is not expected to be a concern at this time.
If today’s Weekly Claims Report is bullish, look for a breakout rally in the December E-mini S&P 500. As I said before, if the tops and retracement resistance between 1122.00 to 1128.00 can be taken out with conviction, then this market should have the power to trigger a rally to perhaps 1160.75 over the near-term.
A bearish number is likely to mean more rangebound trading and will be a clear indication that jobs growth is probably the most important factor driving equity markets at this time.
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