Market Outlook Looking Forward

European situation ugly:

Finding the proposed $1 trillion Euros to fund the EFSF is in doubt. China would have the ability to make it happen, but there is no sign yet that they will commit to buying the EFSF bonds. Other Sovereign States and the Private sector could also contribute, but it remains to be seen how or who will finance the bailout fund. This does not even take into account that everybody knows the proposed $1 trillion is not even sufficient.

Italian bond yields continue to rise. The ECB hints at ending the purchase of Italian bonds if the Italian government does not do its part in promised budgetary reforms. Italian Prime Minister Silvio Berlusconi in jeopardy of being forced to resign. Portuguese, Spanish, French and Belgian bond yields also rising.

Unemployment continues to be a concern in the United states:

Unemployment fell in the US by .1%, but still remains over 9%.

U-6 (Total unemployed), plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force is at 16.2%

US employment is actually lower than it was 10 years ago

US Wages are rising slower than Core Inflation

Although the US labor force rose by 181,000 last month, the overall situation does not look great as the world economy is in a funk. I don't know where the employment opportunities can come from to put any significant dent on the current unemployment rate.

Amidst the negativity however, stocks are holding up well. Market has not yet seen a significant move to the downside following record gains in the month of October. It appears the October lows will hold up as support into the end of the year. Without significant new negative developments out of Europe, any dips will be buying opportunities throughout the remainder of 2011.

Right now:
Until price on the ES can confirm above the current 1258-1262 resistance, I favor the short side. We have up-trending support at 1220 ES which has been tested 5 times in the past month. I expect that a sixth test of this support (currently 1218-1223) will not hold. Therefore the next best long opportunity will present itself in the 1180-1190 range on the ES.

In terms of resistance above, I am watching the 1258-1262 price-area to begin this week. If buyers can move price through that, I like longs from there as price should move up to test the 1267-1272 resistance and then up to the previous highs. The best short opportunity will come if ES trades up to 1290. I will be looking to get short at the first test of this 1290 resistance. This should provide a minimum of a 40 point short play. Depending on news out of Europe, we could see a further move to the down-side. We'll have to wait and see.

To sum it up: I am slightly biased to the short side in the immediate-term. I expect a choppy market until the ES either trades up to 1290 or down to 1180. I will be a confident buyer down in the 1180s and will be a confident seller at the first test into the 1290s.