Nasdaq Composite (Figure 3)
Oil in Play
On a day of light holiday trade oil excelled. Rising over 2% to pass the $100/barrel mark, the gains came primarily in response to threats from Iran to cut off the flow of oil through the Strait of Hormuz. The threat followed the tightening of Western sanctions against the country. Oil had already risen sharply off the year's lows from early October, but had fallen into a trading range after striking price resistance mid-November. Since then it has been trading in a range along those highs. Over the past week it has moved from the lower end of that range to the upper end, so even though part of Tuesday's push was based on political rumblings, it was also a technical continuation of a pattern already in play. Now it will once again have to contend with the upper end of this range. Granted, the range itself has a bias favoring a bullish breakout, but it's a little too early to likely see a strong breakout without stalling once more beforehand.
Oil (Figure 4)
This week is a light one for economic data, but a few things to still keep an eye out for will be the National Realtors' pending-home-sales report on Thursday and the Chicago Purchasing Managers Index report for December on Friday.
The market is still dealing with price resistance from prior highs from this year as it tries to close out the year without a loss. Volume will remain light into the New Year, but this light volume can also amplify intraday swings in markets that do catch the spotlight. This is what we saw on Tuesday in oil. Overall, however, continue to expect light trade. The resistance, coupled with last week's rally, has resulted in slightly higher highs on the 15 minute time frame in the indices. This is creating a Momentum Reversal Short pattern on that time frame heading into Wednesday's session, so buyers beware! Even though investors will not wish to see a negative close for the year, the market will face a struggle to avoid at least an intraday pullback.
Unless otherwise stated, the index action described in this article relates to the E-mini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.
Toni Hansen is president and co-founder of the Bastiat Group Inc., DBA Trading From Main Street. Toni is one of the most respected technical analysts and traders in the industry. She has been trading and educating new traders, money managers, professional market analysts and traders throughout the boom and bust of the last decade. She has worked in conjunction with some of the world's top financial exchanges. Learn more about Toni Hansen and the educational services she provides through her website at http://www.tonihansen.com.