We Need a Break of the 3800 to 3900 Trading Range
Today’s econ data isn’t helping the bulls.
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If you missed yesterday’s guest post, be sure to give it a read. It gives some unique insight from a very talented interest-rates trader and while that may not seem like something for index traders, it will help when it comes to navigating the Fed.
Our View
There are very large congestions of buy stops building up above 3900 and sell stops below 3800. On both sides there are two possible scenarios.
The first is just a quick stop run and then back to the trading range — a “look above” or “look below.” Second, we could have a breakout (or breakdown). I know the new year has brought out some optimism about a beginning of the year rally, but until something really changes, I think any rally will be short-lived.
At some point, the ES will make a high print and everyone will still be rooting for higher prices and then the ES will tumble. On the other side, the ES does appear to be back-and-filling at the 3830 level, but it has not led to a larger sustained push up.
As for seasonality, our friend Jeff of the Stock Traders’ Almanac has given us some nice insights. First, the S&P 500 ended the Santa Claus Rally — defined as the last five trading days of December and the first two trading days of January — with a gain of 0.8%.
Stat-wise, there are three periods on watch right now: The Santa Claus Rally, the first five days of January and the January Barometer. One of three is now positive. When all three are positive, the S&P 500 has ended the year higher about 90% of the time.
We’ll find out next week how the first five days of January ends, as we only have two days in the book so far.
Our Lean — Danny’s Take
Short weeks can be difficult, especially when it's the first trading week of the new year. Plus, a lot gets crammed into the short week. For example, we had the Fed yesterday, then today we will get a look at the ADP employment report, initial jobless claims, trade deficit, S&P U.S. services PMI, and then the Fed’s James Bullard speaks. Tomorrow is the jobs report.
I think the ES has been stuck in this trading range for the last 13 or 14 sessions. I have to be honest, I don't know where the next 100 points in the ES will be and I don’t know whether we will break out or break down. Too many traders have a problem saying, “I don’t know,” and the truth is, none of us do. We are simply trading the action that’s in front of us.
Our Lean: