What The Recent Market Reaction To News May Mean
The December
SP 500 futures were able to
squeak out a gain for the week despite a lot of rotation between sectors and a
mixed finish in the major indexes. On Monday, stocks and stock index futures
started the week with a very solid performance in which all of the key indexes
were able to achieve technical breakouts. However, the remainder of the week
did not go as well, largely due to broad-based weakness in the Tech sector.
With the exception of Intel’s poorly received update late Thursday, there really
was not much news behind the relative weakness in tech shares. Nevertheless,
the money coming out of tech shares seemed to find its way into Drug, Energy,
and Industrial shares. These groups allowed both the SPX and the INDU to remain
positive for the week.
The December SP 500 futures
closed Friday’s session with a loss of -7.25 points, and finished the week with
a gain of +4.50 points. Volume was estimated at a respectable 638,000 contracts,
which was above the daily average. On a weekly basis, the ES posted a shooting
star, combined with Stochs divergence. Looking at the daily chart, the contract
bounced off gap support in the 1,060 area, with next support at its 10-day MA
and 38% Fib retracement in the 1,058-57 area. On an intraday basis, 60-min,
30-min, and 13-min triangles broke to the session lows, with the charts closing
with bear flags.
In recent
weeks, stocks have been in an environment where positive news has not been
positive enough to move the markets. Expectations are now so high for equities
and the U.S. economy that we continue to see “sell the good news” reactions in
the markets. A perfect example was Friday’s Employment report, where the
numbers indicated that the economy added jobs. However, after seeing jobs added
last month, most were expecting a very large upside surprise in the data, which
did not materialize. This sort of reaction to positive news is very indicative
of at least short-term market tops where all the possible good news is reflected
in stock prices (which only leaves room for disappointment). Market
tops are also associated with extremely positive investor sentiment, which is
precisely what we are seeing now. Obviously, it’s much (and I stress the word
much) too soon to even suggest a major top has been put in place. The
technical condition of the major indexes still appears pretty healthy. It’s
even possible that we could now be seeing the “best” news of the current cycle,
which would explain why stocks are acting the way they are (the market is
looking ahead).
Looking
ahead this week, the market will have plenty to digest (or get an ulcer) with
the FOMC meeting on Tuesday, Retail Sales on Thursday, and the Producer Price
Index on Friday. Thursday will also be rollover day for the December futures to
March (symbol is H).
Daily Pivots for 12-8-03
| Symbol | Pivot | R1 | R2 | R3 | S1 | S2 | S3 |
| COMP | 1944.60 | 1953.61 | 1969.41 | 1978.42 | 1928.80 | 1919.79 | 1903.99 |
| INDU | 9877.47 | 9908.63 | 9954.58 | 9985.74 | 9831.52 | 9800.36 | 9754.41 |
| NDX | 1421.31 | 1437.07 | 1444.95 | 1460.71 | 1413.43 | 1397.67 | 1389.79 |
| SPX | 1063.33 | 1066.58 | 1071.65 | 1074.90 | 1058.26 | 1055.01 | 1049.94 |
| ESZ | 1063.50 | 1067.50 | 1072.75 | 1076.75 | 1058.25 | 1054.25 | 1049.00 |
| SPZ | 1063.47 | 1067.43 | 1072.67 | 1076.63 | 1058.23 | 1054.27 | 1049.03 |
| NDZ | 1414.33 | 1423.67 | 1437.33 | 1446.67 | 1400.67 | 1391.33 | 1377.67 |
| NQZ | 1414.33 | 1423.67 | 1437.33 | 1446.67 | 1400.67 | 1391.33 | 1377.67 |
| YMZ | 9870.33 | 9899.67 | 9941.33 | 9970.67 | 9828.67 | 9799.33 | 9757.67 |
| BKX | 941.22 | 945.24 | 951.38 | 955.40 | 935.08 | 931.06 | 924.92 |
| SOX | 502.35 | 507.69 | 516.51 | 521.85 | 493.53 | 488.19 | 479.37 |
| DIA | 98.90 | 99.21 | 99.64 | 99.95 | 98.47 | 98.16 | 97.73 |
| QQQ | 35.21 | 35.46 | 35.88 | 36.13 | 34.79 | 34.54 | 34.12 |
| SPY | 107.08 | 107.54 | 108.26 | 108.72 | 106.36 | 105.90 | 105.18 |
| SMH | 41.47 | 41.95 | 42.71 | 43.19 | 40.71 | 40.23 | 39.47 |
Fair Value & Program Levels
Fair Value — (0.30)
Buy Premium — 0.58
Sell Discount — (0.88)
Closing Premium – 0.37
Please feel free to email me with any questions
you might have and have a great trading day on Monday!