Written By: Ricky Wen
The second week of December played out in a picture-perfect manner offering little to no surprises per our expectations. If you recall, this setup was fully assisted by the ongoing bull train/trend and the first week of December daily 20EMA "stick-save" setup where everybody and their mother had opportunities to load up for dirt cheap per our KISS Report discussions. In essence, last week played out as the usual daily 8EMA acceleration and the market was guns blazing into the 3193.75 multi-month measured move target on the Emini S&P 500 (ES) that most market participants that were biased would discount. Well, here we are as expected, the market is now heading into Christmas/year end closing print with ES/SPY being up about +27% for YTD with a lot of traders just in an autopilot mode as it’s been a spectacular year.The main takeaway from the second week of December is that short-term we’re quite overbought or overextended based on Friday's warnings/readings of the proprietary signals combined with the momentum metrics. This boils down to either a quick mean reversion or it gets even more extended as price does not care and just ignores everything for a few sessions until year-end closing print at the dead highs to wrap up the year. Overall, it’s very crucial to understand the overall risk exposure here for a short-term vs long-term portfolio and when and where to rotate as we head into Q1 2020
. Stay level headed going into year 2020 even though 2019 has been ‘that easy’ even if you were super late to the train like us.
Friday closed at 3175.5 on the ES (March 2020 contract from now on) around the highs of the week as price action broke above the 3158 trigger/ignition level from the 4hr projections chart. Overall, it was a fairly methodical/textbook 101 week that followed all our momentum rules with the market staying as an inside week for 2-3 days and then ramped into the usual Friday dead highs. Feels like deja vu every week now and that there are little to no surprises lately, so gotta keep doing what’s been working.
In summary: Wait for the likely first try rejection reaction to play out here because 3193.75-3200 is a key zone and the 3193.75 target is already considered fulfilled as of last week’s Friday Dec 13. Adapt! Immediate trending supports going into this week are 3177 and 3158. Be aware of rangebound week strong possibility: 3200~-3158~ This week is mainly about not being a piggie because targets across the board (indices+important stocks that we trade) had fulfilled or more than fulfilled their respective targets into year end already as it’s been a spectacular outperformance year to say the least. In essence, it’s likely about realizing short-term gains and hedging the long term portfolio properly for those with the same timeframes in mind. Very crucial to know when to be scaling out/taking profits/rotations for a lot of short-term positions going into Christmas/year end if haven’t already because the December contract expires this Friday and we’re going to be trading the March 2020 contract from now on Seasonality argues that the last 5 sessions of the year + 2 first two sessions of the new year will be heavily favored towards the bulls after this week’s likely rangebound grind.
Ricky Wen hosts the ES Trade Alerts service and contributes his nightly KISS Report on the E-mini S&P 500 at ElliottWaveTrader.net.Related: The Recession Obsession