FED cut rates by 50 basis points citing tightening credit conditions and a deepening housing contraction as well as some softening in labor markets.
ECONOMIC DATA
8:30 AM Employment Cost Index
8:30 AM Personal Income
8:30 AM Personal Spending
8:30 AM Core PCE inflation
8:30 AM Initial Claims
9:45 AM Chicago PMI
YESTERDAY’S MARKETS
A small opening gap started the trading session with relatively calm conditions. The E-mini S&P futures opened at 1358.00 and after testing our initial support levels at 1356.00-1354.50 rallied to fill the gap, just below our resistance area. The index traded in a tight range between 1363.00 and 1356.00 until the FOMC policy announcement came out. The initial reaction pushed up the E-mini S&P to 1379.75 while the E-mini Nasdaq traded as high as 1842.25. A selling wave took the index back to test the 1366.00 level just at our first resistance area and now support, where buyers stepped in and drove the E-mini S&P to new highs at 1387.50, the E-mini Nasdaq to 1850.00 and the E-mini Russell at 718.00. Once those highs hit, heavy selling drove all the indexes down, and once the E-mini S&P broke below the 1366.00 area, everybody turned into sellers pushing the indexes down to new intraday lows at 1347.25 in the E-mini SP,1796.25 in the E-mini Nasdaq and 691.60 in the E-mini Russell. The E-mini S&P lost 11.50 points for the day closing at 1350.50, just above our second support area. The cash Dow closed 37 points lower after reaching and intraday high at 12681.
MARKET COMMENTARY AND OUTLOOK
Yesterday I wrote: “Only two consecutive closes above the 1363.00-1364.00 level on the E-mini S&P will trigger higher prices in a rally that can last for another few days. But if those highs are broken, we could see the E-mini S&P in a struggling move to the 1383.00-1384.00 area with the cash Dow reaching its next resistance around 12700 before this leg up is completed.”
Well, it looks that the upside objectives for this move have been completed and the indexes should start a consolidation period. Yesterday’s highs on the E-mini S&P and the cash Dow show that the indexes rallied almost 50% measured by its December highs to the January lows, that is a normal retracement and maintains the downtrend intact in a move that should result in a test of the recent lows. The reversal from yesterday’s highs shows a spike in volume meaning that it could lead to weakness in the very short term. Yesterday’s rate cut, the second in a little more than one week, shows a desperate move by the Fed to avoid what others consider is already a condition of the U.S. economy, recession. The question is, how long will take for this moves to reflect in the market behavior, before the economic data starts to show improvement on the economy fundamentals? Monday’s lows at 1323.00 on the E-mini S&P could be a good downside objective during the coming sessions, and that coincides with 12040 on the cash Dow, breaking below this low will trigger a test of 1270.00 on the E-mini SP and 11500 on the Dow cash.
Today before the opening the Consumer Spending data for December is released, and probably will show the impact of the collapsing housing market on what consumers were able to spend during the holidays. Tomorrow the unemployment figures will capture the attention as a weak number, which I don’t expect (actually I expect an upward revision from last month’s data) could trigger additional selling.
The indexes have been trading lower during the night, as the pressure continues, and those who are trapped at higher levels, should continue to press to the downside as they take any opportunity to get out of their long positions. The resistance and support areas continue to be obvious and almost identical to yesterday’s levels. The fact that the downtrend is still intact and fear is dominating the markets should favor the downside at least for today’s session, but I still see this move as a consolidation before a test of the January lows where very strong support should be seen.
TODAY’S SESSION
For today’s trading roadmap and intraday updates, please read the authors bio.
TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS
S&P
NASDAQ
RUSSELL
Resistance 3
1372.50-1373.50
1841.00-1842.25
707.70-709.50
Resistance 2
1365.00-1367.00
1830.75-1833.50
700.50-701.40
Resistance 1
1356.00-1357.00
1816.00-1818.00
694.40-696.00
PIVOT
1360.25
1813.50
700.50
Support 1
1347.00-1346.00
1796.75-1794.50
689.60-687.80
Support 2
1341.25-1339.00
1788.50-1786.00
683.10-682.50
Support 3
1336.00-1334.00
1777.00-1775.00
677.50-676.20
S&P
NASDAQ
RUSSELL
FIBONACCI
FIBONACCI
FIBONACCI
1452.22
1935.75
760.72
1442.78
1923.25
754.48
1427.50
1903.00
744.40
1412.22
1882.75
734.32
1402.78
1870.25
728.08
1387.50
1850.00
718.00
1372.22
1829.75
707.92
1367.50
1823.50
704.80
1362.78
1817.25
701.68
1347.50
1797.00
691.60
1332.22
1776.75
681.52
1322.78
1764.25
675.28
1307.50
1744.00
665.20
1292.22
1723.75
655.12
1282.78
1711.25
648.88
DAILY PROJECTIONS
S&P
NASDAQ
RUSSELL
AS DAILY HIGH
1369.00
1830.75
705.00
AS DAILY LOW
1329.00
1777.00
678.60
Support, Pivot and Resistance levels courtesy of Arturo Stern. He authors the E-mini Daily trading advisory which gives technical analysis on all the major stock index futures contract. For more of his analysis go to www.theminitrade.com Arturo can be reached at arthur@theminitrade.com
Futures and options trading involve risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. This is neither a solicitation nor an offer to buy or sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this document. The past performance of any trading system or methodology is not necessarily indicative of futures results.
