US stock futures point to a higher open on Wall Street Monday as we head into the home stretch for 2011. The economic calendar is light this week, so the focus will remain on Europe. ECB President Mario Draghi, in his first interview since assuming the position, warned struggling Euro zone nations that they would face immense immense difficulties if they chose to leave the Euro bloc. Any attempt to devalue their currency would create "big inflation" and leave them in an even more precarious position, he said.
The world will also be watching North Korea closely this week after the death of leader Kim Jong-il. Asian markets dropped last night after the news broke due to the massive uncertainty created in a highly militarized and enigmatic country. Jong-il's third son, Kim Jong-un, is expected to take power. South Korea put its military on emergency alert, fearing a possible show of force from the new regime to cement its power. The US markets have not suffered the same negative response to the news.
Trading volume will almost certainly dry up this week during Hannukah and heading into the Christmas holidays. EU finance ministers have a conference call at 9:30 am ET to revisit progress from the Brussels summit, but beyond that there are likely no other other major sources of headline news this week. Range-bound action this week would not be surprising.
TECHNICAL TAKE
We now enter the last two weeks of the year, and it's hard to get excited about any technical patterns in the market. The macro long pattern on the S&P is still technically intact, but hanging by a thread and feeling heavy. Momentum and has left the markets as many constructive patterns have started to break down. The 1260-1264 area was too tough of a wall to get through and the markets been on the defensive ever since the midday reversal on last Tuesday’s Fed release.
The S&P’s are still above the 61.8% retracement of the move that started on November 28th but it’s a very lethargic tape. This retracement level did hold after that fast and furious move from October 4th up to the peak at 1292 on October 27th. This tape, however, is very volatile overnight and hard to measure. Risk on overnight trades in both directions is very high right now, prompting many traders to take a step back.
If the market can continue higher this morning micro Resistance #1 will be 1220-1225. The next level to watch would be Friday’s high of 1231, and then ultimately 1237-1244 is the next big barrier. I would not be surprised to see the market hit that level at some point this week.
If selling pressure appears, support of the three day range at 1209-1215 would be an important area to watch. A close below this level and I think market can start to unravel. The next major area below that would be 1196-1205.
Quality stocks broke down a bit and are coming into key levels.
Apple (AAPL) still looks like the macro pattern is a Head and shoulders top pattern with a major LEVEL at the 200-day moving average ($366). The stock is opening up a bit but if it can’t get and close above $384-$387 in the next few sessions I think it is worth a short if it breaks and closes below $377.
Amazon.com (AMZN) has been a very weak stock and a great short for traders since the earnings miss. The stock staged a massive reversal on Wednesday. It could retest it’s broken neckline in the $187-190 zone. This is a spot to see some cash flow longs off and look to re-short.
International Business Machines (IBM) broke the upper level that took momentum out of the trade. High level stops should have been in around $190. It’s now trying to hold a uptrend from last September. Trade long vs. Friday’s low for a quick pivot. New resistance is back at $187-188.
Sina (SINA) has been very weak, but had a nice outside day on Friday. It could take some short term pressure off. This stocks is only for traders in this area.
Baidu.com (BIDU) was a nice short vehicle since breaking the macro wedge. If market tries to hang in there it could see a gap fill back to $121ish.
Intel (INTC) is still under pressure from the pre-earnings warning. Watch the $23 area to trade long against- if that breaks it can see 200-day, which would bring more pressure on the market.
Gold (GLD) has been under a ton of pressure as it broke its 200-day moving average last week. I did mention to cover shorts around $153-154 and now we need to see if it can re-claim $157-158 with any huge volume. See if gold futures can close back above $1610ish. If it can’t, gold can see more downside pressure in Q1 2012
The Euro (FXE) is very oversold. It may try to bounce a bit, which can help commodities a little. It feels, though, like more downside is in store for this troubled currency after perhaps a relief bounce.
The Oil Service ETF (OIH) is still trying to hold onto the right shoulder here. I’m still in with a stop at $108
Banks gave us clues that momentum was leaving last week when Goldman Sachs (GS) couldn’t hold $98 and now it’s right near the recent lows. It’s a bit oversold and could bounce a bit, but only for the active trader. The $94-95 area will be resistance, if it gets under Friday’s low and it can be in trouble.
This will be a very thin and volatile week with most big traders already away for the Holidays. Do not size up in a thin tape like we will see this week, because trades can go against you in a hurry.
*DISCLOSURES: Scott Redler is long OIH
