Markets technical overview and trading signals for the week 3-7 December 2012

Good evening everyone.

Powerful continuation up over all the main indices.

The number of (American) stocks above the 20 day moving average is reaching overbought territory with more than 72% of the stocks re-gaining their moving averages.

Statistically, the 80% mark acts as a quite accurate signal for turning points, or at least consolidation periods. December, however, is one of the most bullish months and we may be preparing the ground for Santa’s rally here.

Amsterdam AEX

Nine impressive green candles during the last two weeks brought us back at the 340 level, which is an important reistance. As reported last week, I was expecting a red triangle early in the week, which didn’t came. The signal came on Wednesday at 336. The system is short and under water for the moment. I think there’s a good chance for the short to work out ok and a good chance to see the 330 level again before attacking the 340 for a possible brekout.

France CAC40

The system entered short on Wednesday as well. Moving averages are starting to turn up although volume continue to be unimpressive. It’s not a comfortable position to be short, especially at the beginning of December.  I’m not willing to give it a lot of confidence and it will be stopped if 3600 is broken with conviction. If we go down from here, I’ll look at the rising moving averages and if they offer support, the trade is over.

DAX

Quite a similar situation in the German index, with one particular difference. First and foremost, the 7400 level is a hell of a resistance (tested 5 times), second we are testing it with very low volume (see graph below).

Frankly, I’m not betting on a breakout of the 7400 with these volumes. I think we will see  3-4 days at least of  consolidation here if it wants to go higher.

IBEX

Surprisingly, the system has not yet closed the long started two weeks ago. The pattern is still of lower highs and lower lows although moving averages are setting up nicely. The market is sending conflicting signals, and it’s maybe the right time to pause and wait for some clearer sign before taking a trade.

Italy’s FTSE MIB

A short alert right into the higher Bollinger band. That’s what we wanted to see as written in the last report.

Volumes continue to be weaker than normal. Generally, shorting the daily bollinger on the italian market has been a nice strategy for swing trades. I will watch carefully for a red triangle to short it with a first target of 15500. Weakness around this level may also be good for some quick intraday short.

DIJA

DJIA consolidated at the 13K level and it is showing a nice pattern of higher highs and higher lows on shorter time frames. The short signal triggered on Tuesday is still on, but under water. The chart is showing strength, the short will be likely close for a loss. The stop is placed at 13100.

SP500

Similar situation in the S&P500. The system is short and we are overbought very close to the strong resistance at 1430.  I see this kind of situation often in intraday trading: a failed red triangle with the price cutting trough moving averages and consolidating in time is often the prelude for an inversion of the trend. If this works on the daily timeframe it remains to be seen.

If yes, a failed short is the price to pay in these cases.

Conclusion

In conclusion, a lot of mixed signals are popping up across the board, showing that  market participants are uncertain. Hopefully next week will will have more information to assess if we are indeed at the beginning of the Santa’s rally or if we will resume the downtrend. The general game plan here is  for quick shorts expecting at least a consolidation phase. If volume starts to come in, then we may evaluate a long term long for december in order to climb the wall of worry of the fiscal cliff.

 

Have a nice week everyone.