Nifty & Market Update/Performance/S&P 500,NASDAQ 100/DOW 30 Analysis

S&P 500

During quiet Friday trading, the S&P 500 hung about the 2580 handle, an area that has been important more than once. It’s obvious that if we can make a fresh, new high, the S&P 500 will probably go looking towards the 2600 level above, which should be rather resistive. The fact that we couldn’t go anywhere is not a huge surprise, I believe that most of the market participants are paying attention to the Congress in America, and whether they can pass some type of tax bill. If we do get that, the market should continue to go higher, and eventually break out. In the meantime, we could pull back, perhaps reaching towards the 2550 handle underneath, which is longer-term support as well. Buying the dips continues to be the way forward, as the S&P 500 has been so strong, and of course there is a certain amount of algorithmic trading coming along, and every time that we pull back its likely to attract more machines.

The S&P 500 fell during the week but found enough support at the 2550 level to turn around and form a hammer. The hammer, of course, is a bullish sign, and we continue to form them just above the 2500 level. While this market is overextended by just about every metric I use, not to mention the fact that the stochastic oscillator has crossed over in the overbought condition, it’s become obvious that the 2550 level is a major support level. When markets reach this type of over extension, one of 2 things will typically happen: we would either pull back significantly to find enough value to go long again, or we will go sideways for a while. Recently, it’s become a bit obvious that a pullback is going to be difficult to get. I think the market may continue to go sideways in If we do break down below the 2550 handle, I suspect that the 2500 level underneath is even more supportive. Because of that, it’s likely that we will see buyers in that area on a breakdown, and the longer-term trader would be well served to step out of the way and let the support work its magic. Alternately, if we break above the 2600 level, it’s time to start buying again as well. This market has been overdone, but longer-term traders will not be interested in selling, as the risk to reward ratio simply won’t be there. Earnings season has been good, so that might continue to lift this market, and if the US dollar continues to fall, that might help as well. I also get the feeling that most traders are simply waiting for the US Congress to finally pass a tax bill, which should send stocks much higher.general.

Markets overall continue to be volatile, but that’s to be expected as we await political outcomes. In general, I prefer to buy dips, because we are at elevated levels, and that means it’s only a matter of time before we get some type of pullback. Best the nature markets, offering value eventually. I look at that as an opportunity to go long, and I believe that any time this market becomes “cheap”, you need to be there. However, being patient and waiting for pullbacks is one of the more difficult things to do, but I think that we will eventually get that opportunity. Even though the 2580 handle seems to be holding out, I suspect that waiting for lower pricing is going to pay off in the end.

  

NASDAQ 100

The NASDAQ 100 fell significantly during the week, reaching down to the 6200 level. Well bounce from there to form a bit of a hammer, and a break above the top of the hammer should send this market much higher. The NASDAQ 100 has gotten a bit overextended, and that the market should continue to go towards the 6500 level if we can build up the necessary momentum. The NASDAQ 100 typically will lead the way for other US stock indices, so I expect to see that happen eventually. However, I believe that the floor in the uptrend is the 6000 handle, with every 100 points below offering potential support for buying as well. The NASDAQ 100 will benefit greatly from a tax bill, so if the US Congress gets it together, that could be the next catalyst to send the NASDAQ 100 much higher levels. If we were to break down below the 6000 handle, I would step out of the way.The NASDAQ 100 drifted a bit lower but has been more resilient than the Dow Jones 30. Because of this, I think we need to see a little bit more bearish pressure, perhaps reaching towards the 6300-level underneath, which is an area that’s been important for both buyers and sellers recently. I believe that the market probably needs to drop down further though, and relatively soon. Quite frankly, even though we formed a hammer on the weekly chart I am a bit leery about buying at these extended levels. The market should react positively to a tax bill, and I think we are essentially waiting for that over here as well. The NASDAQ 100 is especially sensitive to this as repatriation of funds overseas for US tech companies will be paramount as to where we go next. I expect that today could be a bit soft, but I certainly wouldn’t be a seller of a market that is this strong.

The December E-mini NASDAQ-100 Index failed to follow-through to the upside on Friday following Thursday’s strong surge to a new contract high. This price action suggests that perhaps the previous day’s attempt to breakout to the upside was fueled by short-covering and buy stops rather than new buying. Given the weak close, some traders who bought strength the previous day, may be trapped near the high. This could lead to intense selling if they are forced to liquidate their bad positions.The main trend is up according to the daily swing chart. A trade through 6358.50 will signal a resumption of the uptrend. A move through 6230.75 will change the main trend to down.Friday’s inside move suggests investor indecision and impending volatility. The indecision is probably being caused by worries over whether the U.S. tax reform bill will be signed into law before the end of the year. Investors are also concerned about the whether the Mueller probe into election improprieties will affect the Trump Administration’s ability to accomplish the President’s agenda.The short-term range is 6011.00 to 6358.50. If the trend changes to down then its retracement zone at 6184.75 to 6143.75 will become the initial downside target.The main range is 5842.00 to 6358.50. If the selling pressure continues to build then its retracement zone at 6100.25 to 6039.25 will become the primary downside target.

 

Dow Jones 30

The Dow Jones 30 fell a bit during the week, as we continue to stagnate underneath the 23,500 level. I think a pullback from here could make some sense, with the 23,000-level underneath being a bit of a “floor.” That floor giving way could send this market even lower, perhaps down to the 22,500 level after that. The market is a bit overbought as the stochastic oscillator has been crossing, but quite frankly I think that it’s a market that should remain bullish longer term. I think we are waiting for the US Congress to pass some type of tax bill, and as soon as it does, we could continue to go higher. I believe that the “floor” in the overall uptrend is closer to the 22,000 handle.The Dow Jones 30 had a rough session on Friday, dropping down towards the 23,350 level. The market looks likely to see some support in this area, and on the stochastic oscillator, we have dropped enough to reach towards the oversold condition, and perhaps getting ready to cross over. That being the case, I think that buying is probably the best way to go in this general vicinity, but perhaps we may even drop further. The lower we go, the more likely it is going to offer us value that we can take advantage of. I believe that we are in a bit of a “holding pattern”, as we await the U.S. Congress to do its job. Tax bills are difficult but necessary to extend the profitability of US companies.

 

Stock Market update

Stocks are on course to begin the abbreviated holiday week on a slightly lower note as the S&P 500 futures currently trade three points, or 0.1%, below fair value. The major U.S. stock indices are coming off a mixed week, during which the S&P 500 and the Dow lost 0.1% and 0.3%, respectively, while the Nasdaq climbed 0.5%.

Elsewhere, equity indices in the Asia-Pacific region finished Monday on a mixed note, with Japan's Nikkei (-0.6%) showing relative weakness. The major European bourses are trading a tick higher, even though talks to form Germany's next coalition government fell apart overnight. Germany's DAX is up 0.2%.

The third quarter earnings season is nearly wrapped up with nearly 95.0% of S&P 500 companies having already reported their quarterly results.However, there are still a number of notable companies due to report earnings this week, including Urban Outfitters (URBN) this evening, Lowe's (LOW), Dollar Tree (DLTR), HP (HPQ), Salesforce (CRM), and GameStop (GME) on Tuesday, and Deere (DE) on Wednesday.

As for the rest of the week, Existing Home Sales for October will be released on Tuesday, followed by weekly Initial Claims, October Durable Goods Orders, the final reading of the University of Michigan Consumer Sentiment Index for November, and the minutes from the latest FOMC meeting--all of which will be released on Wednesday.

U.S. Treasuries are trading slightly higher this morning, sending yields lower across the curve; the benchmark 10-yr yield is down one basis point at 2.34%.Also of note, West Texas Intermediate crude futures are down 0.7% at $56.31 per barrel and the U.S. Dollar Index is up 0.1% at 93.66.

In U.S. corporate news:

• Wal-Mart (WMT 96.44, -1.03): -1.1% after shares were downgraded to 'Neutral' from 'Buy' at Goldman.

• Verizon (VZ 45.90, +0.48): +1.1% after shares were upgraded to 'Outperform' from 'Market Perform' at Wells Fargo.

• Equity indices in the Asia-Pacific region began the week on a mixed note. Japan's Nikkei -0.6%, Hong Kong's Hang Seng +0.2%, China's Shanghai Composite +0.3%, India's Sensex +0.1%.

In economic data:

• Japan Oct Trade Balance: (in JPY): 285.4 bln vs 330.0 bln exp

• Exports +14.0% vs +15.7%e

• Imports +18.9% vs +20.2%e

• Japan Oct Convenience Store Sales -1.8% vs 0.0% in Oct 2016

• New Zealand Oct Perf of Services Index 55.6 vs 55.9 in Sep

In news:

• China's Shanghai Composite managed to bounce off early morning lows after the PBOC injected the most cash into the system since January to help shore up the bond assets.

• Japanese shares could not shake off weaker than trade data, which saw both Exports and Imports come in below expectations.

• Major European indices are sporting modest gains in spite of the news that talks in Germany to form a coalition government have failed. Germany's DAX +0.2%, France's CAC +0.3%, UK's FTSE +0.2%.

In economic data:

• German producer prices were up 2.7% year-over-year in October, as expected, down from the 3.1% reading seen in September.

In news:

• The failure of government coalition talks in Germany, which the Free Democrats (FDP) attributed to "irreconcilable differences," raises the specter of Chancellor Merkel trying to govern with a minority government or Germany calling for a new election altogether. The political uncertainty has weighed some on the euro, which is down 0.1% against the dollar, but overall, investor angst has been held in check thus far.

• Separately, there are reports that UK Prime Minister May will press for cabinet support to increase the UK budget offer as part of the ongoing effort to facilitate Brexit negotiations.

MORE WILL UPDATE SOON!!