Good Morning Traders!
Stock indexes closed a record number of times on one side of the 5 SMA – a true testimonial to the persistency of trend. Normally, the first close below the 5 SMA sets up a buying day the following day. However, this does not test out once the market has had over 22 closes on one side…rather, the model suggests that a short can be entered on the first close below and covered 2-3 days later for a small gain. There are unfilled gaps basis the pit session that may come into play on Monday – at least for the SPs. 2054.75 is the start of the gap basis the Dec SP futures. If liquidation pressures increase the first week in December, the next level down would be the daily EMA which will probably come in around 2046 with another 2 days of trading. The Russell came close on Friday to its daily EMA. 2063.50 was Friday’s low and will be the main pivot to the upside.
The charts below also show the pit session gap for the Dow.
The large standard deviation move in Crude falls into the category of “Price Shock”. Price Shocks are something that can not be forecast and lead to an increased amount of uncertainty in the markets. This implies that traders can trade on a shorter time frame or use faster systems…..but stay away from trying to predict where a market will go. For more on Price Shocks, Perry Kaufman did the best work in the area and you can Google his writings or his book on the internet.
The markets will have lots to absorb with Friday’s trading as many market participants were away over the holidays. Look for equities to test lower – they are already well down Sunday evening…however, the SPs have not yet traded into the gap area.
With ALL markets – if there are big gaps on Monday morning, look first to see how the market can trade back into the gap area. If it fails to make a meaningful retracement, it is a good sign of continuation in the direction of the gap. For the markets that had big moves on Friday (ie., the Canadian Dollar), look for 60/120 or 240 minute buy divergences or (sell divergences) to lead to consolidation.
Have a great first day of the month!