Strength Argues for a Bullish View Going Forward

The market did pull back as expected and the ES saw a move down and through my first level of support yesterday. Again positive remarks from Boehner and Obama regarding the fiscal cliff were enough to put a bid back into the market. Buying pressure was intense for the second time in a little over a week signaling that this latest bullish move is likely here to stay.

Markets are gapping up this morning with the ES trading up into resistance approaching 1418. I had said I would love shorts in this area in my previous post, but since the market has already pulled back, this is no longer the case. I do like shorts up here, but only as day trades now. I will look for a pullback to at least 1409-1410 and potentially as low as 1400 or at least to Gap Fill at 1406-1407. Need to see how the market closes today to know more. Expect support to hold on any pullbacks. If buyers step in and drive price back up or if price can remain elevated into the close, this will signal confirmation for bullish momentum and I will like buying dips going forward. This is what I expect to happen.

Levels to watch today on the ES (Z December Contract):
Resistance above at: 1416-1418, 1423-1425
Support below at: 1408.50-1409.50, 1403-1404, 1399-1400

Rally Off Lows Now Hitting Resistance

As I said would happen in my previous post, markets rallied right into the Thanksgiving holiday. More buying  pushed price even higher during Friday's shortened trading session on low volume. This morning it looks like Markets will open a little lower, having given up Friday's end-of-session gains. 

I would be comfortable selling any rallies from here (ES currently trading at 1400).

Resistance above on the ES (Z December Contract) at: 1402-1403, 1406-1407, 1413-1418.

If the ES does continue higher and trades as high as 1418 without pulling back first, consider it a gift-wrapped short opportunity.

This market will pull back, and as cliche as it sounds, continued talks regarding the Fiscal Cliff should provide the catalyst. 

Support below on the ES at: 1393-1394, 1387-1388, 1375-1377, 1365-1367.

The next best buying opportunity will be a move back down to the mid 1360s. From there look for the rally to continue into the end of the year. That's what I'm looking at for now, we'll see what the price action tells us from here...

Short-Term Bottom In

Friday's action saw massive buying come into the market following another lower low on the ES. Oversold conditions begged for an excuse to rally and optimistic remarks from Obama and Boehner regarding the fiscal cliff provided the catalyst. The ES rallied almost 19 points in just over an hour and finished the day back over 1360. I Expect buying to continue as we head into this week and the Thanksgiving holiday. If you're not already long, I'd be very confident in buying dips from here.

For some targets to the upside lets look at some key resistance levels.

Resistance on the ES (Z December Contract):

1367-1370, 1386-1388, 1394-1397.

Consider taking profits on long entries at any of these resistance levels. Even though I am bullish now in the short-term, I will consider shorts again as the ES approaches 1400.

That's what I am looking at right now, lets see how the market opens...

Friday's Rally Gets Smacked Back

Prior support in the mid 1380s (ES Z Dec Contract) proved to be strong enough resistance to stop a momentous rally on Friday. Strong enough in fact, to smack the market back down with conviction, faster than it rallied earlier.

So what next?

The action on Monday (a limited volume holiday) was meaningless consolidation. I continue to favor the upside in the short-term as long as the 1372-1373 support (which happens to be the 61.8% retrace of Friday's rally) holds. Its probably a 50/50 proposition right now. I prefer long entries though, as the risk to reward ratio is favorable to the upside. But given the weak market, longs have to be taken with caution. I wouldn't defend any moves below 1372. If the "rally" from here is to play out, the ES still needs to break above the mid 1380s resistance. That will provide the potential to run back up above 1400 and possibly to 1405-1410. If the ES does reach that price range, I will look for short entries from there. Overall, markets remain in a down-trend and we must await further price action to signal something different.

Reversal Time

This morning the ES made a new low 100+ points off the September and October double-top. Heavy buying momentum has followed. I am now biased to the up-side in the short term. Next target is 1402-1405 ES. We may not see another dip to buy today...

What to do Following the Largest Down Day Since November 2011

First of all I must mention that yesterday's post turned out to be remarkably accurate in terms of price action during and after the election. The ES moved 47+ points from the lower 1430s resistance level to my downside target in the mid 1380s. So what next?

The ES now sits above support at 1385-1386. This is a very important level. Support needs to hold here or we may see a considerable leg down looking forward.

Too early to tell what will happen, but odds are that we see at least a short term bounce from the 1390 area. If you are long, be careful defending anything below 1385-1386.

In terms of buying today's decline, good places to take profits are at the following resistance levels:
1400-1401, 1406-1407 and 1411-1413.

Any long entries will be day or short term trades for now as the market is currently trending lower. I will need to see consecutive closes above the 1413-1420 area before getting optimistic about the long side again. That being said, I do think the market is in the process of making a bottom. We'll need price action to confirm this before knowing for sure.

So key levels to watch right now are 1385-1386 as support and 1411-1413 as resistance on the ES (Z December contract 2012).

If the 1385 level is broken it is not the end of the world, but we will need to see buying come in to prevent the market from making consecutive closes lower.

The coming days will be telling.

What to Expect Following the Election

We got the move up to 1430 ES that I talked about in my last post and sellers came in and sold those gains as I expected. Key resistance remains at 1430.  I will be looking for a move up to test last week's high of 1431.50 and possibly break it. That should create another good shorting opportunity. Assuming resistance does hold in the lower 1430s, I will be looking for a  move lower regardless of who wins the election. Initial target to the downside is the mid 1380s. From there I will be looking for the market to find support and eventually form a pivot low that can be bought and held into the end of this year. We'll have to wait and see how price action behaves over time following the election before I get into any more detail there.

The markets should sell off regardless of who wins the election. Markets are already at four year highs and are showing signs of weakness following the announcement of QE3. In the case of a Romney win, assumptions of a change in Federal Reserve monetary policy will cause the markets to sell. In the case of an Obama victory, fear of tax hikes will cause the markets to sell. There is also a high possibility that the election will be close. Any contention or litigation questioning the legitimacy of the winner will cause more uncertainty in the markets and again will influence selling. But in both cases I believe that selling will likely be short lived. We remain in a loose monetary policy environment that favors low interest rates, inflation and devaluation of the US dollar. This is not going to change regardless of a Democrat or Republican victory. The Fiscal Cliff will be less of an event than many expect and markets should  resume their risk on mentality.

For today, look for a range bound market with potential to fade moves in either direction. I am biased to the upside as the election results come in, but like I said, resistance is strong at 1430 ES. A move up to or slightly above this level should provide a great shorting opportunity. I will be looking for the market to sell off below 1400 from there or following the election. First target to the downside is 1385-1388. Good luck and get out there and vote if you are eligible...