STOCKS COMMENTARY
Temporary back & fill as election euphoria is replaced by slowing fears
Apparently there won't be second day of euphoria in the wake of the election as stock prices around the world have re-embraced the threat of significant slowing again. In fact, despite an ongoing thawing of the credit markets the trade seems to be unwilling to chase prices higher which briefly reached the highest level since October 15th overnight. Clearly a number of markets are reviewing the magnitude of the rise off the October lows and that alone has many bulls fearful of a setback in prices. While the US economic data today won't bring forth any first or second tier readings, the trade will be presented with a potentially important Quarterly refunding announcement and if that event brings forth evidence of aggressive US borrowing, that could send long rates up and in a sense limit the near term prospects of an improvement in the home building, real estate and banking sectors. In order to rekindle the bullish environment through the coming three days of economic information, the market's attention will have to be diverted toward another stimulus package and/or more toward more international rate cuts. Unfortunately those capable of moving on the stimulus package and those with the capacity to cut rates might have to be prompted by renewed weakness in global equity prices. With efforts for a stimulus package expected to be delayed somewhat in the transition of power some back and fill action on the charts is now expected.
S&P 500: The S&P managed another new high for the move but it is clear that the market reached at least a temporary overbought condition around this mornings highs. Like the Dow, the S&P was 183 points or 22% above the October lows and that is quite a significant rally in roughly six trading sessions. A normal retracement of the October bounce would give an initial downside target of 938.20, which somewhat coincides with the October 31st low. The coming three days are an extremely critical decision window for the market, as the trade currently assumes that the October lows are major lows and that the market will be able to avoid a re visiting of financial meltdown concerns and that the slowing will be given some type of definitive duration in the coming days. Other initial support points on the charts are 979.80 and then again at 969.
DOW: While the Mini Dow actually managed another new high for the move overnight, the market is clearly over extended technically (at least on a 6 day basis) and therefore a return to 9,226 or even 8,987 shouldn't be that difficult for the market to engineer over the coming two trading sessions. However, we see the Friday morning payroll report as a very significant volatility event window. The only good thing is that the markets in generally are already expecting a bad number but the bad thing is that the Dow is currently 1,622 points or 22% above the October lows! Because the report Friday might not be as bad as expectations, is possible that the market will avoid a major profit taking dive. In short, those looking to get short should utilize just out of the money November put plays.
NASDAQ: Like the Mini Dow, the Nasdaq has made a fresh new high for the move overnight but also like the rest of the market, one gets the sense that the trade is somewhat overbought after the sharp recovery bounce off the October lows. The market has to be seen as somewhat overvalued fundamentally, as the pre-election euphoria has the December Nasdaq 249 points above the October lows. We see a near term retest of the 1350 level, but we can't rule out a return to the 1300 level at some point in the coming three trading sessions. On a positive note, the after hours most active list showed a mix of tech sector and cyclical stocks forging additional gains, so the market continues to see bouts of bargain hunting buying and perhaps even long term investment buying and that could limit the magnitude of the coming back and fill environment.
TODAY'S MARKET IDEAS:
None.
NEW RECOMMENDATIONS:
1) Buy November Mini Dow 9,250 puts for 250. Use an objective of 520. Risk the play to 100.
2) Buy the November S&P 870 puts for 84 with an objective of 171. Risk the trade to 49.
PREVIOUS RECOMMENDATIONS:
None.
STOCKS TECHNICAL OUTLOOK:
Note: Technical commentary is based solely on statistical indicators and does not necessarily correspond to any fundamental analysis that may appear elsewhere in this report.
S&P 500 (DEC): Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The market's short-term trend is positive on the close above the 9-day moving average. If yesterday's gap higher on the day session chart holds, additional buying could develop this session. Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The next upside target is 1024.62. The next area of resistance is around 1016.25 and 1024.62, while 1st support hits today at 989.75 and below there at 971.63.
S&P E-MINI (DEC): Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. The market's short-term trend is positive on the close above the 9-day moving average. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The near-term upside target is at 1036.68. The next area of resistance is around 1023.87 and 1036.68, while 1st support hits today at 981.13 and below there at 951.19.
DOW (DEC): The upside crossover (9 above 18) of the moving averages suggests a developing short-term uptrend. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. A positive signal for trend short-term was given on a close over the 9-bar moving average. Follow through buying looks likely if the market can hold yesterday's gap on the day session chart. There could be more upside follow through since the market closed above the 2nd swing resistance. The next upside objective is 9758. The next area of resistance is around 9692 and 9758, while 1st support hits today at 9488 and below there at 9349.
MINI-DOW (DEC): The moving average crossover up (9 above 18) indicates a possible developing short-term uptrend. Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The close above the 9-day moving average is a positive short-term indicator for trend. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The next upside target is 9905. The next area of resistance is around 9848 and 9905, while 1st support hits today at 9512 and below there at 9233.
NASDAQ (DEC): Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. The close above the 9-day moving average is a positive short-term indicator for trend. The market's close above the 2nd swing resistance number is a bullish indication. The next upside target is 1414.75. The next area of resistance is around 1401.50 and 1414.75, while 1st support hits today at 1358.50 and below there at 1328.75.
EMINI-RUSSELL 2000 (DEC): Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. The market's short-term trend is positive on the close above the 9-day moving average. The daily closing price reversal up on the daily chart is somewhat positive. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next upside objective is 564.4. The next area of resistance is around 553.1 and 564.4, while 1st support hits today at 531.6 and below there at 521.2.
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