The Week in Crayons

Although the markets opened the week in an ugly fashion, they quickly reversed course and drifted higher for most of the week. Other than a few moments of weakness, there was almost no selling pressure this week as the bulls roamed freely while the bears sat back and let them have their holiday break. However, any illusions (delusions?) of a “Santa Claus Rally” are just that as we have not moved significantly from a technical perspective for quite some time now. The silver lining to this recent lack of movement is that volatility has calmed down allowing the markets to rest constructively as they digest the explosive move they had after making what looked like disastrous new lows in early October.

Looking at a chart of the e-mini futures contract for the S&P 500, we can see the recent constriction in price action as all of this month’s candles are clearly inside of the pivot high and low we formed from late October to late November. Keep an eye on these two areas as there will be significant implications concerning them once they are breached.

A move above them will likely signal a new rally and lead to a retest of this year’s highs while a move below them would invalidate our bounce from this year’s lows and probably lead to a retest and possible failure of those lows as well. However, in the short term, we are now testing the key 200 day moving average once again as we bounce between several important moving averages. Watch for the rising 20 day moving average to support price action if it stalls here as the bulls attempt to clear the recent highs we formed in early December. If the bulls fail here as we close out the year, watch for 1200 to be the first line of support followed by much stronger support at the 1140 level which forms the key pivot we discussed earler.

Next week’s trading will close out the year, and traders should expect action to remain light and mostly muted as the holiday season winds down. Watch the edges of our range this week as price is not likely to move with any real conviction as many of the big boys are on vacation and not likely to return until the start of the new year.

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Posted in Charting & Analysis, Charts, Commentary, Futures, General Trading, Stocks