The bears decided to kick back and relax for Thanksgiving, allowing the bulls some much needed relief from the heavy post election selling in the markets last week. While we saw a pretty strong bounce higher, much of it was on rather low volume during a holiday week and should be viewed with suspicion until we see more evidence confirming new strength returning. However, while the likelihood of a strong Santa Claus rally may be up in the air at the moment, there is a very good chance that we have already seen the lows for 2012 and and a pretty decent chance that we stay above our recent lows as well. While it seems as if we have been free falling for weeks, the technical landscape is not really that damaged in the bigger scheme of things and the correction we just endured can hopefully go a long way towards resetting charts that were getting extended. However, there is plenty of supply overhead now and we aren’t really out of the woods yet so traders should keep an eye out on the price action over the next week or two to see if the bulls can regain the initiative or if the bears are just waiting for another opportunity to reenter their shorts.
Looking at a chart of the SPDRs S&P 500 etf (SPY) we can see two major points of contention approaching if the bulls are to attempt to continue pushing the price action higher. The first is the $142 price area just above us which has been a strong point of contention throughout the year. This area is likely to be a magnet for price action and a key level in the coming weeks.
Even if the bulls are able to push past it and challenge the next likely area of distribution around $144, look for the bears to push price back to this level at some point. If price stalls here and returns lower, than look for price to stabilize somewhere in the gap we formed last week as initial support and the lows from a couple of weeks ago around $135 as major support. The $135 area which finally supported us during our recent sell off also marked the highs from 2011 and was a strong area of demand during the earlier portion of the year and should serve as an area of accumulation if it is revisited this year.
We are currently in the middle of a rather large recent range, and not in a great place to be trading heavily. Whether you are bullish or bearish at the moment, chances are you should wait patiently for a better setup to emerge in the next week or two instead of trying to push the action here.
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