While it appears that international equity markets have managed to discount the Indian terrorist attacks and several key markets managed gains overnight, the early US action was somewhat mixed to weaker. Apparently the stock market is capable of discounting a certain measure of slowing evidence, but we also fear that a dose of pre and post holiday euphoria has served to carry prices upward and that once the market gets back to the normal day to day grind, the market might begin to view prices as expensive, especially when the trade is presented with more evidence of slowing next week. In fact, given the magnitude of the gains over the prior 4 trading sessions and the obvious ongoing deterioration of the US economy, one has to be surprised in the performance of the stock market this week.
Clearly the presence of more US government assistance and the announcement of an even bigger than expected US stimulus plan was beneficial to the bull camp early this week, but now that prices have climbed all the way back to the middle of the last two months trading range, we are becoming increasingly more skeptical of the bull case. However, even though the US market is showing some initial weakness this morning, we can’t rule out some initial optimism toward the shopping season kickoff early in the day today. On the other hand, if and when it becomes apparent that the holiday sales are indeed disappointing that could facilitate a profit taking mentality. The market might be up higher today, but prices are short term overdone from a technical perspective and prices are beginning to look very overdone from a fundamental perspective.
DOW: With the Mini Dow already climbing above the 50% retracement of the November range and closing in on the .618 retracement up at 8,794, we suspect that the market is poised to run into some overhead resistance. Initial support today is seen at 8,602 and then again down at 8,497. We wouldn’t rule out an attempt to rally this morning and perhaps the holiday euphoria will even be able to carry the market into an early close today, but we would like to ultimately be short this market for a look at a possible setback next week.
NASDAQ: The December Nasdaq seemed to run into some resistance at the 50% retracement of the November range at 1201.90 early today, but it is possible that the market might exhibit some positive action due to the lingering proximity of the US holiday. Higher resistance is also seen up at 1245.75, which is the .618 retracement level off the November trading range. Much has been made of the positive action of the stock market in the day before and the day after Thanksgiving but toward the close today, traders might also note that in the past, the stock market has generally exhibited weakness in the Monday after Thanksgiving. Therefore, we would respect this markets capacity to rally at some point today, but on strength today, traders should consider getting short or consider purchasing puts.
S&P 500: The December S&P has managed to entrench itself above the 50% retracement of the November range, which is pegged at 873.60, with the .618 retracement of the November range seen up at 905.36. In fact, while we can’t argue against a possible test of levels above the 900 level early today, we like the idea of getting short on a rally, or simply looking to get short just ahead of the early close today. Failure to hold above 875.10 this morning could be enough of a technical failure to turn a thin trade environment more negative. However, in the end we would watch press coverage of the holiday sales kickoff closely this morning for direction in the equity market into its early close today.