Trading plan for Dec. 2nd week

Market  Commentary for the week ahead:

Last week's trading started with a wrong bias on ES, which was published on thanksgiving day.  But, after taking the stop losses immediately, the rest of the week has been highly  successful,  as  ES moved between my  support and resistance numbers.  So, overall i am considering last week to be successful blog articles. (Note that i publish intraday or daily updates as comments.  I put in these comments in the last 2 blog articles every week).  Since members do not get  'auto-update email'  when a comment is published, i have decided to send out a group email, whenever i update with a comment.

As of this sunday afternoon, there is no major news releases that could move markets in a major way.

1. On monday there is a  lunch meeting between german and french leaders, in preparation for Dec. 9th meeting of  EU political leaders. 
2. ECB meeting could potentially release some form of action, if there is an accord from the monday meeting of  french and german leaders.
3. In the US, there is no major  economic data, until  thursday/friday.  On friday US trade data, which is the biggest piece of economic data for this week, in USA.

So, it is quite likely  that the major move of this week will come in the second half of this week, rather than monday/tuesday. I have not checked the major news expected out of asia for this week, since i am not associating much weightage to asia right now.

So, for this week, i am presenting my trading plan for the week ahead.  My support and resistance levels (published on Dec.1st)  have not changed.  As i noted in that article, i am more precise with the support levels  but the resistance levels may have a few points of error (as witnessed in  last friday's  NY session).  But, my trading sticks to my numbers (for reasons of  risk management properly).

Technical  Analysis:

I beleive that market is bullish for december to test highs.  My year end estimate of 1290 on ES will be seen sometime during december (even if we do not finish year end there).  The central bank intervention last week  puts a floor below ES  for this week near  my support level of  1216.5.    Note that this is exactly the target for my longs, as declared in a comment on monday, november 28th at 11.30am, (when ES was 1192 and below).  If you continue reading those comments, you will see that i was considering  shorts if  ES pushes above 1260.  This happened on friday, and following the resistance levels posted, i am holding short 1260 and 1249, going into second week of  december.  So, even though i am bullish for december, i am trying to play a potential down move, before any push higher is possible.

Capturing Short side of the market:

During monday NY opening, if  market takes a bullish direction and ES reaches 1260, my swing shorts from last week will take a 5.5 point stop loss. This is acceptable, since my risk/reward criteria is justified with a potential move to my second support near 1230.5.  I am planning on covering these shorts near 1230.5 support area, depending on market  action on monday/tuesday.

Capturing  Long side move:

I plan to  wait and see market action around 1230-1226 and assess news breakouts on monday,  to get ready for a  potential move up. Buys will be initated near my support levels near 1217 and 1225, which will be sold at 1269.5, as my  high probability (80%) trade of this week.   IFF  i am able to get entry near 1217, i would consider holding half of  this long position for higher level resistances for year end target of 1290. I will make a decision on this, based on developments during the week.  I will take the long positions using January options, to capture the potential  up move as much as possible.

Stop loss for these longs = 1208 area in december.
Futures market is not yet open this sunday evening, and ES is  at 1244,  friday's close.

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.