December 18, 2015:

AFTER HEAD-FAKE RALLY WEDNESDAY POST-FED, RISK BACK IN BEAR MODE

Here are some random observations before we get into today’s analysis:

• The risk markets reacted initially with glee following the long-anticipated rate hike by the US Federal Reserve this week.However, that glee was quickly turned into a more fearful attitude by most big investors as the realization that the party may be finally coming to an end.
• The bearish action that continues to occur this December is clearly signaling that things may be changing into a more bearish overall tone.
• That being noted, the bears are likely going to be treading lightly as we head into the holiday shortened trading period over the next two weeks.Light volume will probably keep the big players on the sidelines – which could actually mean some additional volatility if anything unexpected occurs.
• Barring the unexpected, though, we would tend to believe that the bias may be to the upside – provided key support on the S&P and crude charts does not break down!!!
• Let’s go to the charts to see if we can get some more direction on things….Have a great rest of the week and a wonderful weekend!

S&P futures reflecting new non-dovish Fed paradigm

Recap of last week’s thoughts on the S&P e-Mini Futures:

• S&P futures were trading bearishly and were threatening to break below support at 2012 – 2016.We noted that a close below that level would open up room for a move down to 1980.50.
• We recommended waiting for a wash-out down to 1981 to buy.We gave an upside target of 2095.
• We recommended waiting for a bounce to 2095 to consider shorting.

Here’s an updated chart of the S&P e-Mini Futures:

The S&P e-Mini futures have been on a violent roller-coaster ride this week – first rising powerfully (ahead of and immediately after the US Fed’s interest rate announcement) and then falling precipitously later in the week. The reality may be setting in that the Fed is now off of their previously dovish posture and are neutral to hawkish now.

Right now, the minis are at a point where they will either rally and re-capture support at 2014.25 – 2016 or they will tumble all the way down to the recent pivot low at 1983.As of 11:15am EST on Friday, they are trading at 2015 – so we’ll definitely have to pay attention to Friday’s close.

If they hold support at 2014.25 into the close, we think a rally should take place that will take the minis back up to the range of resistance at 2083.75 to 2097 (which represents both Fibonacci “correction resistance” as well as horizontal line resistance set by the peak on December 2^nd.

We would be willing to own / buy the S&P e-Mini futures contract between 2012 and 2014.25 with stops in place on any close below 2012 and an upside target of 2083.75.

We would not be looking to short the minis unless and until a rally to 2097 played out – especially given seasonal tendencies surrounding the end of the year.