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Index Wrap

Treading water

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The major indices spent the better part of the day treading water after outplacement firm Challenger, Gray & Christmas said announced layoffs in November fell to 99,452 in November after reaching a 12-month high of 171,874 in October.

Economists' made special note that the Challenger survey only captures a tiny fraction of all layoffs. According to government data, about 1.5 million workers lost their jobs in the first four weeks of November and filed for state unemployment benefits. John Challenger, CEO of the employment firm also noted that November's figures are not seasonally adjusted to account for the large number of job cuts typically announced at the beginning of the fourth quarter, and that announced layoffs are just that, announced, and may not necessarily be immediate, but take place over weeks if not months.

Still, the Challenger survey, which isn't necessarily viewed as a major economic report lacks any real discernable trend in corporate downsizing, where Mr. Challenger said "is indicative of uncertainty associated with the current economy."

The world's largest maker of automobiles had General Motors (NYSE:GM) $43.28 +0.34% posting the strongest year-over-year increases in U.S. auto sales for the month of November, as most automakers uncovered improved sales results driven by incentives and an improving economic outlook and consumer confidence.

GM said sales jumped 22% to 363,181 vehicles, number 2 automaker Ford Motor (NYSE:F) $12.92 -1.52% said sales were off 4% from last year to 255,533 vehicles, while DaimlerChrysler (NYSE:DCX) $38.54 -0.43% said U.S. sales rose 3% from last year to 157,212 vehicles.

Meanwhile, Honda Motor (NYSE:HMC) $20.25 -1.02% said total sales rose 0.7%, Volkswagen's sales rose 28% to 29,257, Audi's sales slipped 0.4% to 7,107, Porsche's sales hit record levels and rose 58% to 2,654, while Subaru said monthly sales fell 5% to 13,088.

I can't say that any of the above economic-related data had much impact on today's trade. As I was reviewing a timeline on today's late session fade lower, the only timeline I can put together with any meaning would be the sell program premium alert triggered just after 02:00 PM EST, which unbeknown to me at the time came about 20-minutes after the S&P 500 Index (SPX.X) 1,066.62 -0.32%, which closed 3.5-points lower on the session, had traded its MONTHLY R1 of 1,070.83, and marks the first equity index to trade its MONTHLY R1 in October.

I would only suggest that this 1,071 level might be a near-term level where some institutional profit taking would be found, and wouldn't get too excited about this afternoon's late fade.

After barely meeting publisher deadline for last night's Index Trader Wrap, I made some notes in the Market Monitor that the NYSE Composite had recorded an annual high number of new 52-week highs in yesterday's trading session at 619 and when looking at tomorrow's pivot matrix and some stacking up of correlative resistance in the DAILY/WEEKLY levels, being offset by stacked correlations in the WEEKLY/MONTHLY levels, it gives me the impression that the major indices may have gotten a little "too bullish" near-term, but pullbacks will most likely be bought with some vigor.

Pivot Matrix -

If there is one concern of mine, and perhaps a concern of other market analysts, its the continued drubbing the U.S. dollar continues to take, despite a more positive economic backdrop.

One very complex trade I continue to hear mentioned on the weakening dollar versus euro is a three-way trade by European market participants where euro-based participants that are not intervening to weaken their currency against the dollar, are using the strength of the euro to buy oil, using the leverage of the stronger currency, to then sell the dollar. I dare say this complex trade, which I don't fully understand, nor portend to, would at least make some sense on the directional play of the dollar, whereas our friends in Asia seem more set on trying to sell their stronger currency, and buy the weaker dollar and Treasury bonds.

I must then chuckle to myself in regards to things being "too bullish" as the weaker dollar most likely has to be associated with the growing deficit, but one would think at some point that the strengthening economy should be finding some offset to the deficit with improving government tax receipts. The inability of the dollar to find any type of prolonged bid of stability (for more than a week) still has the bullish side of me rather cautious.

Heck, even Barton Biggs said tonight on CNBC that he hasn't a clue at this point what to expect from the markets, with the dollar being one of his greatest perplexities.

One chart we haven't looked at in awhile is the December S&P 500 Futures contract (sp03z) with my fitted retracement overlaid. Last night I was also working on this chart after it settled at a new contract high, where I felt the need to once again place a new upside retracement on it, should the 1,073.30 level be violated to the upside.

We were using the PINK retracement and levels within the retracement to establish bullish or bearish biases based on where this contract settled each closing night. Using the EXACT principles of anchoring at a relative low close, then "fitting" the 38.2% retracement at a relative high close, that for whatever reason seemed to be a significant level of resistance, I've added a new BLUE retracement level, then colored in YELLOW what I would deem zones of support and resistance. The YELLOW zone from 1,001.80 to 1,007.80 was established months ago, and I would currently associate the 1,046.20-1,051.20 zone as a similar zone, where a backfill after a new contract high might have futures traders looking to buy a pullback.

Remember, futures create GREAT leverage, and you can well bet that there are some futures traders just as short the futures market as there are traders short the S&P Depository Receipts (AMEX:SPY) $107.33 -0.25%.

S&P 500 December Futures contract (sp03z) - Daily Intervals

While I captured this chart earlier this morning, it may tie in rather well with the S&P 500 Index (SPX.X) 1,066.62 -0.32%, or cash market, in our pivot matrix. Today's trade did see the above futures contract trade a session high of 1,071.00, where as the cash (SPX.X) saw a session high trade of 1,071.22. Note how narrow the futures/cash spread becomes as we now near December expiration, and how today's trade of a rather major MONTHLY R1 level may have had some institutional sell programs selling a large basket of stocks at a level.

With the levels shown above, the bullish bias would remain above 1,058.50, but it is the YELLOW zone from 1,046.20-1,051.20 that grabs my attention as it relates to the MONTHLY Pivot of 1,051.20 and WEEKLY Pivot of 1,051.37 in our pivot matrix, which may well mark a bullish level of support for a pullback bullish entries.

Some may argue "But Jeff, all your doing is making the future chart match your pivot matrix levels." However, this is why I'm using the EXACT SAME discipline of attaching to a relative low settlement in the futures, then attaching, or fitting the 38.2% retracement at a relative high settlement, that for some reason was deemed SIGNIFICANT for resistance by the market.

S&P 500 Index Chart - Daily Intervals

The SPX has been the STRONGEST index of late, not only as it relates to our observations in the pivot matrix, but also on its pure technical merits of trading a new 52-week high in the manner that its has. Right now, this is the HEAD of our animal (inchworm and snake analogy has been used) and we want to monitor it for strength, but also for any near-term weakness.

A pullback to the 1,058 level would simply be a very normal digesting of gains, where a pullback into the 1,051 level becomes what I begin to observe a very good bullish entry point.

In the above chart I've noted a tie in with the YELLOW zone of support, with the S&P futures chart and my latest fitted BLUE retracement of 1,058.50. This 1,058.50 level in the futures was resistance for all of November, but broken solidly to the upside on Monday. As such, I still have to deem it a level where trade above still keeps a BEARISH trader very defensive as overhead supply is relatively nonexistent.

Dow Industrials (INDU) Chart - Daily Intervals

Some bears seemed more eager to short the INDU at 9,900 last week, but from what I saw in today's market monitor, were very tentative about such a trade. I don't blame them. The first inkling of weakness would be back below 9,832 and I'd probably have to add 10-point to that given the larger price scale of the INDU. Still, while bears were tentative to short the INDU at 9,900, bulls seemed just as tentative, but there was little in the way of economic data to really build a conviction.

NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Intervals

I just couldn't get behind a bullish QQQ trade, nor a bearish trade in today's market monitor until after the sell programs brought QQQ weakness down to a level I thought we might get a little bounce to the close, which never really took place. The Q's felt a little heavy today, but I would look for a bullish entry back near $35.14, but I'm a very short-term bear right now with very modest downside intra-day targets.

Jeff Bailey

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