Sunday, November 30, 2008

This Week's Trade 12/1

Going into the month of December the market is coming off a one week rally where we have went up 21%. Yes, 21% in one week. As the chart to the left shows this brings us right to the 900 resistance level which is just above the 20 day MA. It also brings us to the downtrend line that has been in play since mid Sept. I am starting to see some interesting things forming on the charts and have gotten a little more bullish since last week. The SPX has a nice falling wedge pattern setting up on the daily chart. This pattern will probably take a little longer to play out as it is still forming. However if the SPX gets over the 920s we could be in for a much larger rally than most think. I tend to think between now and Jan-Feb timeframe we could be up in the 1050-1100 range. Remember even if we rally up to the 200 day EMA which sits around 1187, we would still technically be in a bear market downtrend. But nevertheless it is very possible we see an intermediate rally in the coming weeks.

With that said, we just rallied up 21% in one week, on relatively light volume by the holiday shortened week. We will pullback this week. The question is how much of the most recent advance will the market retrace? I would expect us to come down to the 850s at the very least to test support. I tend to think we may have seen the lows for the year but who the hell knows. Just saying that I see a bullish falling wedge on the chart and cannot ignore this. Also the weekly and daily RSI is showing positive divergence on the SPX and this is a very telling signal that we could climb higher from here.

Economic data coming out this week includes Monday's Construction Spending and ISM Index. Tuesday is Auto and Truck Sales. Wednesday we get ADP employment, Productivity, ISM services, and the Fed Beige Book. Thursday is the all important Initial Claims and Factory Orders. Finally on Friday we see November Jobs data.

All in all it will be a interesting week to see how the market reacts to higher volume and more data. The charts are at a decision point. We are at 900ish and could run up to 920 quickly or selloff and retrace some of the recent rally. I'd bet on the latter to begin the week at least. We shall see how the week unfolds.

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