The Trading Week Ahead – SP500 finds resistance at 2,180.
The Trading Week that Was
We started the week on a calm note, as markets were pricing in a Hillary Clinton presidency.
By Tuesday night, it became clear that the polls were wrong and Donald Trump would win the election – with the Dow futures dropping 800 points by midnight. The Mexican Peso got creamed, Asian stocks cratered and the Japanese Yen surged on risk-off refuge.
Wednesday morning, we saw a different Trump that gave a more inclusive tone during his victory speech. The sweep in the House and Senate for the Republicans also meant a pro-business president had the complete power to make decisions and pass legislation. Dow futures finished the session up nearly 1,000 points.
Thursday the market heard more of Trump’s policies, lower taxes, aggressive fiscal stimulus and repealing of Dodd-Frank regulation. Markets were punch drunk with hope and optimism and climbed higher, with the banking sector exploding upward. Wells Fargo was up over 13%.
By Friday, the Dow closed at a record high of 18,873 and up 5.4% for the week. SP500 rose 3.8% and Nasdaq rallied 3.8% as well. The earnings season also wrapped up for the quarter.
Gold got smashed on Friday, dropping 2.17%, down over 4% for the week.
Crude oil finds itself at the $43 key support, but down 1.5% for the week.
The US dollar finished the week up 2.2% at 98.99, after dropping to as low as 96.00 on Tuesday evening.
The Trading Week Ahead- Economic Events
Monday will be a slow economic day for the US.
Tuesday, we will see retail sales data, which has been pretty strong since May of this year. Expectations are for 0.6% on the m/m data. The rest of the day will see the empire state manufacturing index and more importantly Stanley Fischer will be speaking at 1:30PM EST.
Wednesday will see two Fed speakers before the US market opens, along with oil inventory data at 10:30AM EST.
Thursday is jam packed with data, including William Dudley speaking before market open and Charles Evans in the afternoon.
Friday has 3 speakers, before the market open, at the open and in the afternoon session after lunch.
This week is full of Fed speakers. All eyes are on interest rates and the December meeting.
The Trading Week Ahead – Equity Market Outlook
The 2180 level on the SP500 is a significant overhead resistance. We will likely try to make another run at this level on Monday, which could lead us to fresh all time highs if we get above. There are a lot of traders that got long above 2,180 in anticipation of a break out in August. As we approach this level, these longs will look to sell at break even after surviving a turbulent ride, which creates even further resistance.
Stock market breadth is starting to pick up and has followed the rally from last week. The 50 day moving average breadth is now above 52% (bullish) along with the 200 day moving average which is above 58%. Look for breadth to follow the rally, if we see a down tick in this indicator the upside is hollow and ready for a pull-back.
Our weekly bias is moderately bullish up until 2,180, but bearish if it fails and turns lower.
The Trading Week Ahead – Oil Outlook
Iran’s oil minister showed no urgency for reaching a production accord, saying that the November 30th OPEC meeting is not a deadline for any deal. Saudi Arabia has also claimed they won’t do a deal without Iran and Iraq at the table. Inventory data continues to show an over-supplied market, with the EIA report suggesting demand continues to be soft.
Our oil target is $40 a barrel by February, but it could reach much lower. At this time, we think the sell-off is a little overdone, and we may see a rally this week to shake out some weak shorts that have piled on to this trade. Short oil has become a far too crowded trade. Price now sits at the 200 day moving average, and that won’t blow out in one shot, we’ll see some rotations off this level.
The Trading Week Ahead – Gold Outlook
Gold got hit hard this week, after rallying up to $1,340 an ounce. We were happily long at $1,250 in mid-September, but our target was hit at $1,300 on November 1st and we locked our profit. The $1,300 level was bound to roll over into key resistance and stuck buyers sold all they could to get themselves out at break even, creating an unbalanced supply.
The metal was doomed after crossing below $1,280 at the 200 day moving average support, and is now out for $1,210 at the 50% Fibonacci support. This would make a reasonable buy area, but not before receiving confirmation signals.
The Trading Week Ahead – US Dollar Outlook
The US currency is huffing and puffing and trying to rally through the 99 resistance, which it has failed many times since late September. The blue smoke is starting to come out the muffler end, and we think we could see the currency soften down to 98 before taking a run at 100. The 98 is our support for this week with 99.50 as the upside target (if we get above the 99’s first). We look to get long the US vs weaker currencies, and if resistance holds, sell USD against stronger currencies.
The Trading Week Ahead – Currency Relative Strength Chart
The chart below is a 4H time scale, and shows the strength of individual currencies by adding up the collective sum of the underlying pairs.
Strong:British Pound, US dollar, Swiss Franc, Canadian Dollar
Weak: Japanese Yen
Fade Trade Idea: Short the USD and long the JPY (stop above 107.50)
Trade Idea: Long the USD and sell the JPY (on retracement to 106 even)
Have a safe week and remember to manage your risk – the rest will work itself out.
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