Daily Trading Advisory 17-December-2008

[Arturo Stern]

DAILY TRADING ADVISORY 17-December-2008

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CPI lower by 1.7%, Housing Starts huge decline, Best Buy better than expected numbers, Goldman’s lower revenue and earnings and FED’s slashing rates by 75 basis points gave the markets a strong boost.


ECONOMIC DATA

10:35 AM Crude Inventories

YESTERDAY’S MARKET

After reaching 883.00 during the Globex session, the E-mini SP opened at 877.00, tested 875.75 and bounced to 882.50, just below the nightly high; another small pullback resulted in a spike to 884.25 after electing some stops. The SP then pulled back to 878.50 but once more bounced holding higher during the first half hour of the session and posting a new high at 885.00 from where it pulled back to 879.00 and bounced back to a lower high. As the same pattern of trading continued, the SP pulled back to 877.50, bounced a few points, backed off and moved to anew marginal highs at 885.75 while the Nasdaq reached 1217.75. As volumes were light in front of the rate and Fed’s policy announcement, markets held nicely for the next couple of hours trading in a narrow range. As the rate decision and the policy statement got release, the SP moved straight up to 894.00, pulled back to 886.00 and continued higher reaching 898.50, then traded on a three point range, made a new high at 899.75 and sold off to 887.50 and bounced back to 898.00 from where it backed off once more to 891.50 and with shorts running to cover finally broke higher reaching 913.25. The SP pulled back slightly to 906.50 and made another attempt at the highs from where it pushed down to 904.50 just to get bough once more making new highs into the end of the session at 914.75. For the day, the SP closed at 912.75 after gaining 40.50 points for the session, the Nasdaq ended the day at 1241.00, up 46.00 points, and the Russell finished at 479.00 gaining 23.80 points. The Dow ended the trading session at 8924 with a huge 359 points gain.


MARKET COMMENTARY AND OUTLOOK

Yesterday I wrote:” Investor fear, reflected on the lack of participation in the markets and the flight to bonds, may halt any rally attempt during the coming session, despite that the markets are acting well after any sell off attempt. I am still looking for the SP to move higher and reach 940.00-960.00, if that happens before of after the end of the year, I don’t know. Last Friday’s 828.00 Globex lows seem to be a problem, I don’t like when the SP does not trade the nightly prices, and if the continued bad economic data and the FOMC rate decision due for today disappoints, we could see that area tested before bulls come back with force. However, the SP and Dow have respected the mid term triangle formation which once it gets broken surely will result in a strong move. That means that the 892.00 resistance area and the 848.00 low boundary when beaten will indicate short term direction, until this breakout occurs, the markets will continue to trade on a sideways pattern; all the time that the false breaks, like the 828.00 last Friday’s low on the SP get immediately reversed. The pattern of trend looks a bit easier on the Nasdaq, the 1200.00 area is the line in the sand, that index is positive or negative above and below that level. Take also in account that many times the resulted move seen during the FOMC rate decision session gets reversed the next day starting a trend pattern that can last for a few days.”

Well, the Fed did not disappoint, and regardless of the poor economic data, pointing for deflation and signaling additional contraction on the housing sector, markets pushed strongly higher. Last week highs at 919.00 on the SP and 9000 on the Dow will have to get exceeded in order to get a confirmation for yesterday’s huge breakout of the last triangle formation. However, the close above the 908.50-905.50 levels on the SP should be seen positively. I wrote in my yesterday’s report that many times the move seen during a Fed’s day gets reversed during the next session, I don’t know if there in enough bears out there to get a totally reversal from yesterday’s rally, but at least, we could see some consolidation from yesterday’s move. Last week 9000 level on the Dow was clearly rejected, so selling the rallies all the time that the SP and the Dow do not break above last week highs may be the way to go for today’s trading session. That does mot mean that in a n expected consolidation opportunities can not be found on both sides of the markets, so an early sell off that pushes the markets down strong could result in a late rally, but if the indexes can not move higher showing some follow through for yesterday’s move, the 890.00 on the SP should be visited today.

Markets have the tendency to repeat what they have done in the past, so there is a chance to see a good reversal from yesterday’s rally, so I will favor the short side all the time that last week highs on the SP and Dow remain intact, if they get exceeded, I will wait the first hour of the session and then get short once they get broken to the downside, surely with tight stops because if my expected pullback does not happens, then the way is open for the SP to continue moving higher to my 940.00-960.00 upside objective. If the markets open with a weak note and the SP sells off down to 889.75-888.00 I will consider a long entry.


TODAY’S SESSION

There is strong resistance at last week highs at 917.50-918.50 on the SP, 1248.00-1250.50 on the Nasdaq and 482.30-483.60 on the Russell. Trading above them will result in additional short covering as the indexes could reach 922.00-923.50 on the SP, 1257.00-1258.50 on the Nasdaq and 486.80-487.50 on the Russell. If the rally lose its steam at those levels, look for a good reversal and get short with tight stops, however, if those do not stop the upside move, look for the next levels at 926.00-928.00 on the SP, 1264.00-1266.00 on the Nasdaq and 490.20-491.00 on the Russell to get tested before we see some profit taking.

There is support at 908.50-906.50 on the SP, 1235.00-1233.00 on the Nasdaq and 576.40-475.30 on the Russell. If those can not hold, look for strong support at yesterday’s first reaction highs after the announcement was done. Those support levels are at 899.75-898.00 on the SP, 1226.50-1225.00 on the Nasdaq and 471.50-470.20 on the Russell. Those may hold the first time they get tested, if not markets should continue lower testing 890.00-888.50 on the SP, 1215.00-1213.00 on the Nasdaq and 466.20-464.80 on the Russell before buyers appear once more. GOOD LUCK.

TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS
S&P NASDAQ RUSSELL
Resistance 4 935.00-936.00 1273.00-1274.50 495.40-496.50
Resistance 3 926.00-928.00 1264.00-1266.00 490.20-491.00
Resistance 2 922.00-923.50 1257.00-1258.50 486.80-487.50
Resistance 1 917.50-918.50 1248.00-1250.50 482.30-483.60
PIVOT 898.75 1226.25 471.30
Support 1 908.50-906.50 1235.00-1233.00 476.40-475.30
Support 2 899.75-898.00 1226.50-1225.00 471.50-470.20
Support 3 890.00-888.50 1215.00-1213.00 466.20-464.80
Support 4 882.50-881.00 1208.00-1206.00 461.00-459.80


S&P NASDAQ RUSSELL
FIBONACCI FIBONACCI FIBONACCI
990.24 1345.02 527.13
979.26 1330.98 520.47
961.50 1308.25 509.70
943.74 1285.52 498.93
932.76 1271.48 492.27
915.00 1248.75 481.50
897.24 1226.02 470.73
891.75 1219.00 467.40
886.26 1211.98 464.07
868.50 1189.25 453.30
850.74 1166.52 442.53
839.76 1152.48 435.87
822.00 1129.75 425.10
804.24 1107.02 414.33
793.26 1092.98 407.67



DAILY PROJECTIONS S&P NASDAQ RUSSELL
AS DAILY HIGH 937.00 1275.00 494.40
AS DAILY LOW 890.50 1215.00 466.20

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