Will santa bring me gifts this december ?

December 1st was a doji  on  spx futures, but  support and resistance that i published 20 hrs ago (yesterday night) caught both extremes of the doji in past 24 hours, and  2 round trips of about 15 points each direction were possible in this range. 

December historically has been an up month, and with the joint action by top central banks around the world, everyone believes that the stage has been set for december. While this does not address the fundamental problems in europe, this does buy some time for politicians to  figure out a solution. By injecting free money into the banks through short term loans,  the central banks are essentially providing liquidity to global banks for the short term.  The last time central banks acted in concert  was during the japan nuclear crisis in march; they were able to stabilize  yen and thus prevent market meltdown on top of nuclear meltdown.

So, essentially central banks have put a floor under the markets and the "crash possibility" has been erased for december.  The next important meeting is on Dec. 9th,  EU leaders summit, where they are expected to announce some form of funding from IMF and ECB together, to purchase bonds of  the troubled countries. 

On the positive side, we have been getting good economic data in US, even though data from asia is disappointing lately (auguring slowdown of 2012 global economy). This has helped put a floor under the markets since august.  But, i think we have started december closer to the ceiling rather than the floor.  (Why ?)

I produced a consensus year-end target for spx, in mid november and my research created 1290 area as target (http://tradersams.blogspot.com/2011/11/plan-for-building-long-term-portfolio.html). One data that i did not mention in that article was that i also expected that a bearish finish for the year would create spx 1195 area.  Add to this one more piece of data (that i gathered today), from bloomberg survey of analysts, which gives year end spx target of 1295.  Please note that my target of 1290 is on the ES futures, which agrees with the spx number from bloomberg.  So, this validates the research and conclusion of Nov. 16th.

All this data presented here, helps create  a ceiling and floor for trading december. This data  highly relevant right now, because we are right smack in the middle of  ceiling and bottom (1295-1195 / 2 = 1245).  Those of you who have followed me for much of 2011, know that i reserve a 5 point margin of error on big ranges like this.  This theory partially explains why market capped at 1245 area after a big rally in last couple of days. So, we have established that we are in the middle of the range, and awaiting news and ready to go either direction in next few days.

The last factor why i think we are closer to ceiling than floor is because of the uncertainity sorrounding the Dec. 9th EU leaders meeting. How much funding will they be able to put together is still unclear, and risk aversion will prevail until then.

Yesterday's post mentioned that i am fairly confident of the support numbers i mentioned for  next couple of weeks, but was not as accurate on the resistance levels.  Notice that on Dec 1st, ES exceeded my first support and resistance by about 0.75 points.  This is the kind of margin of error one should expect for day trading ES, and so asserts the validity of the first level of support/resistance.  Today i am trying to establish the resistance numbers on ES more accurately.

1258.5, 1269.5,  1274.5 are my resistance estimates for next few days. Yesterday i mentioned the plan of buying the dips. Going into next few days, i have switched to the strategy of sell the resistance highs, as it is safer, as we approach the ceiling level for the year.  I think a pullback is due soon, possibly to the bottom level of supports.

I have confirmed this analysis, with a intermarket analysis. So, following risk aversion, i think it is more likely to see other markets like oil and metals pulling back, along with ES.  Another factor that supports this theory is the 2008-2011 chart i presented  on october 18th (http://tradersams.blogspot.com/2011/10/q4-2011-outlook-and-beyond.html). The 42 days i expected are over as of December 1st.