US stock futures point to a higher open on Wall Street Monday as we head into the home stretch for 2011. The economic calendar is light this week, so the focus will remain on Europe. ECB President Mario Draghi, in his first interview since assuming the position, warned struggling Euro zone nations that they would face immense immense difficulties if they chose to leave the Euro bloc. Any attempt to devalue their currency would create “big inflation” and leave them in an even more precarious position, he said.
The world will also be watching North Korea closely this week after the death of leader Kim Jong-il. Asian markets dropped last night after the news broke due to the massive uncertainty created in a highly militarized and enigmatic country. Jong-il’s third son, Kim Jong-un, is expected to take power. South Korea put its military on emergency alert, fearing a possible show of force from the new regime to cement its power. The US markets have not suffered the same negative response to the news.
Trading volume will almost certainly dry up this week during Hannukah and heading into the Christmas holidays. EU finance ministers have a conference call at 9:30 am ET to revisit progress from the Brussels summit, but beyond that there are likely no other other major sources of headline news this week. Range-bound action this week would not be surprising.
We now enter the last two weeks of the year, and it’s hard to get excited about any technical patterns in the market. The macro long pattern on the S&P is still technically intact, but hanging by a thread and feeling heavy. Momentum and has left the markets as many constructive patterns have started to break down. The 1260-1264 area was too tough of a wall to get through and the markets been on the defensive ever since the midday reversal on last Tuesday’s Fed release.
The S&P’s are still above the 61.8% retracement of the move that started on November 28th but it’s a very lethargic tape. This retracement level did hold after that fast and furious move from October 4th up to the peak at 1292 on October 27th. This tape, however, is very volatile overnight and hard to measure. Risk on overnight trades in both directions is very high right now, prompting many traders to take a step back.
If the market can continue higher this morning micro Resistance #1 will be 1220-1225. The next level to watch would be Friday’s high of 1231, and then ultimately 1237-1244 is the next big barrier. I would not be surprised to see the market hit that level at some point this week.
If selling pressure appears, support of the three day range at 1209-1215 would be an important area to watch. A close below this level and I think market can start to unravel. The next major area below that would be 1196-1205.
Disclosures: Scott Redler is long OIH
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