The following is a predominantly technical analysis view of what to expect to in the stock market in the upcoming wee (Dec 7-11).  We will use the S&P 500 as our reflection of the market.  This can be used by day traders, swing traders or investor to gain insight into what is unfolding, what to expect and what to look for.

Intra-day traders saw large and swift moves occur this week.  If an hourly chart of the S&P 500 is pulled up for Nov 10- Dec 4, we see a range which is peppered with aggressive buying and selling into the extremes and then pulling back off the levels and heading to the other side.

Something very interesting to note is that on 3 consecutive days (Dec 2, 3, 4, always early in the day) the market went above the previous swing high, triggering stops and buy orders, and then pulled back into the range.  The lack of conviction above 1115 indicates this market is not likely to move aggressively higher…and if and when it does it will be in the new year.

This does not mean we won’t see tradable moves above 1115, but with circumstances right now -  volume light, global risks, disconnects between intermarket relationships- this area is a danger zone until volume picks up and we successfully break above this area, move higher and then on a pullback successfully hold that level.  In other words, patience will be required.

Massive moves are expected in all the following major markets: currencies, commodities and the stock market (bonds too, but I don’t focus on them too much).  We may have started to see this on Friday.  How easily we jump from bubble to bubble.  What catalyst sets off the fireworks is yet to be determined.

But lets’ move to focusing on the actual technical levels of importance:

In the upside, 1115-1120 is a resistance area determined my multiple false breakouts.  I would use at least a two point buffer above this level.  As mentioned above, with light volume I much prefer not to trade the breakout but wait for the breakout to falter and then short the market as it falls back through the resistance area (that is not advice…that is simply what I am watching for).  If a legitimate breakout does occur, even on light volume it can scamper quite a ways.  Targets are 1123, 1128 and 1131.

On the downside 1096 is important.  A move through there takes out the Friday low and would successfully close the window (gap) opened on Dec 1.    Such a move indicates a movement to test to lows of the range.  1087 is the most likely target followed by 1085.

A drop below 1080 (using a buffer below the lows) would punch us out of the range we were in.  The target for that breakout is 1055 which is just above a hourly trending support line (going back to Sept).  There is important interim support which will provide us with other signals during the week.  There is little support, in the event of a break downwards, until 1072.  This is the top from a gap that occurred back in early November.  The low of the gap is 1070.  If that gap is closed by new price movement it is a bearish sign and prices are expected to continue to chart lower into the 1068-1064 area.  Support also comes in at 1060, therefore it will take fierce action to reach 1055 if in fact this market does break lower.  This is because the average weekly range for the S&P is just over 37 points, and the market closed on Friday right around 1106.

Trade with the trend, but don’t become attached to it.

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Cory Mitchell, CMT
Chief Market Strategist
-Know your risks when trading. Please read the Legal Disclaimer page.

The following is the stock market outlook, using the S&P 500, for the week of Nov 30, 2009  – Dec 4.  This analysis can be used to help in day trading or swing trading decisions, as well as for investors to gain technical insight into the current market.

Events like which occurred on Wednesday, with Dubai World saying it would not be able to pay it’s debt, are the type of events which will be the catalyst for this market going lower.

Technically this market rally is on shaky ground at these levels.  We have divergence on multiple time frames, not to mention inter-market divergence (markets moving contrary to the general relationship).  Divergence can last for a long time and is a not a trading signal in itself, but when news such as that of Dubai World is released, hardly ever does it come alone.  There are still many systemic problems, and no matter how much money is thrown at a problem, traders and investors still get scared.

Right now the trend is still up, and should be traded as such, but be cautious.  Support is Friday’s low at 1084.  A drop below that would punch us out of the range we were in.  The target for that breakout is 1055 which is just above a hourly trending support line.  There is important interim support which will provide us with other signals during the week.  There is little support, in the event of a break downwards, until 1072.  This is the top from a gap that occurred back in early November.  The low of the gap is 1070.  If that gap is closed by new price movement it is a bearish sign and prices are expected to continue to chart lower into the 1068-1064 area.  Support also comes in at 1060, therefore it will take fierce action to reach 1055 if in fact this market does break lower.

The average weekly range for the S&P is just under 37 points, and the market closed on Friday right around 1091.

If the upcoming week brings rainbows and butterflies, here are the levels to watch on the upside:  To move higher the first resistance point is a short term level at 1100.  We also have resistance at 1105 followed by1108 and 1110.  Beyond this are recent highs in the market, right around 1114.  A break above that indicates another upswing.  Volume should be rising if this occurs, but so far this market rise has not occurred on large volume, so look for volume to at least remain steady.  A decline in volume on a breakout is likely to result in a failed signal.

Targets beyond 1114 are 1118,  1123, 1128 and 1131.

Trade with the trend, but don’t become attached to it.

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Cory Mitchell, CMT
Chief Market Strategist
-Know your risks when trading. Please read the Legal Disclaimer page.

The following is a look at what can be expected in the stock market in the upcoming week, Nov 23-27.  We are looking at the S&P 500 .  Keep in mind the market is closed on Nov 26 and it closes early on Nov 27.  So we are looking at an abbreviated trading week.  Volume has already been light and has been declining since the march lows, but more recently has been declining since the end of October.  Expect volume to be quite light this week, especially Friday.

Monday set a false tone for last week.  We broke above the 1107 level mentioned in last weeks post.  The ride to 1118 should have been smooth sailing, but there was really no buying above in this region.  Selling was not that strong either, until Thursday.

On Tuesday when we couldn’t make new highs, but made new lows we had an indication that the market was likely to head lower.  Volume is also a factor in this.

This past week gave us very clear support and resistance levels. Here is what to look for:

A rise above 1098 is likely to cause a pop back to 1102-1104.  This is where former support, now resistance, comes into play.  That range that held most of the price action through early last week is now going to act as a ceiling.  If it climbs higher than that, expect more range bound trading between 1104-1113.  With the light volume we may see the market pushed around and may see a spike above the high, but unless it is accompanied by large volume the break is very highly likely to fail.  The market getting above the highs this week is not probabilistically high though.

The upside target is still 1118, but I am very leary of trading long up in that area unless it is for quick scalps.  UNLESS, once again volume makes a come back….from my keyboard to God’s ears.

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On the downside we have support at 1086-1084.  A break below indicates a move to 1076.  Below that watch how it reacts around the gap of 1072-1070.  A closing of that gap is bearish and indicates further selling.  A gap below that along with a close would be even more bearish.  Further support is at 1065 and 1060.

I will trade what the market gives.  But personally I do not believe this market is a buying opportunity.  In fact I think the wool has been pulled over the publics eyes and that this market and the economy are in serious trouble unless serious changes are made…and those changes cannot include more spending, incentives or pushing the consumer into more debt.

Trade in the direction of the trend but do not become attached to it.

Cory Mitchell, CMT
Chief Market Strategist
-Please read the Legal Disclaimer page.

On the hourly chart the trendline is still rising.  We managed to reach former highs last week, but could not sustain the momentum to stay above that level.  We do have some solid levels in the upcoming week which will give good indication of where this market is going if those levels are moved through.

On the upside we have resistance from 1100-1105.  We have seen multiple failures in this region.  Obviously we need to get through this area if the market is going to head higher.  A break above 1107 would indicate strength and that we are heading for another swing higher.   The target for the move is 1118 followed by 1130 if the former level is exceeded.

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We have support at 1085.  A sustained break below that indicates a move to test 1072.  This is the profit target based off the last swing high-swing low, substracted from the low. This is also where the gap up on Monday occured.  If that level holds expect a move back higher, but if that gap is filled and we hit 1070 it is a bearish sign and prices overall are likely to head south.  Support is likely at 1065 and then 1060.  Breaks of those indicates a further move to 1052.

Cory Mitchell, CMT
Chief Market Strategist
-Please read the Legal Disclaimer page.

I know many day traders who spend hours looking for the perfect stock to trade, or a stock that is poised to breakout and make them a fortune.  How is that working out???  This is an inefficient way to trade the stock market.  Moves happen everyday, in all stocks and if we know how to capture that movement it doesn’t matter what we trade.  That said, we may as well play stocks that are moving a lot…but this does not require much research.

If you are looking to day trade in stocks, keep it simple.  Day traders often look for stocks poised to move, instead of stocks which are already moving.  Possibly this is because they feel they have missed some movement already.  Who cares!  Profits are profits.  Things in motion tend to stay in motion, things at rest tend to stay at rest.

Here is a simple method for finding stocks which are almost guaranteed to move:

Run a screen once a week for stocks that have an average daily range (high- low, we don’t care about gap opens) over 5% (50+ day average).  Set a price filter and volume filter.

For this particular strategy I only trade stocks with over 4 million average (30 days) volume and actually generally trade stocks that have a 6%+ average daily range.

Very simple screen!  Presto, you have stocks which have a tendency to move a large amount each day AFTER the open!  Run this screen once a week and pick the best 2-5 stocks, and day trade those all week.

One note about the price filter – day traders often gravitate to very cheap stocks or relatively expensive stocks…I generally stay away from both these.  Run your screen with a $10 range, for instance $30-$40.  This will keep the result you get back to a smaller amount.

Day trading requires a sound method of attack.  But now you will have a handful of stocks you know will move so you can put your methods to more fruitful use.  We don’t know the direction these stocks will go on a particular day, we only know that they move a lot.  So be nimble and prey on the volatility.  Have a trending strategy and a ranging strategy in order to take advantage of the volatility.

Get too many search results?  Increase the filter criteria.  Volume is good, so increase the average volume, or increase the average daily percent (the higher the better in my opinion).

Too few results?  Relax the criteria.  Try a different price first, then slightly reduce the volume or the average daily range.  Still no hits?  Weird.  But if that is the case, wait to good stocks to come up on the list.  We don’t want to sacrifice too much volume or trade stocks which won’t move (unless we want that).

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Day trade the day lights out of it,

Cory Mitchell, CMT
Chief Market Strategist
-Know your risks when trading. Please read the Legal Disclaimer page.