Black Friday Give Equities a Jolt
Tuesday, November 29, 2011
Equity traders focused on the holiday shopping season and ignored the ugly macro outlook and European debt situation. The question now becomes whether this will be the trend going into year end or if the robust consumer spending will simply provide the market a short-term sugar high. A full week of economic data, capped off by non-farm payrolls on Friday, could also cause traders to refocus their attention on the macro outlook. Technically, the Dec E-mini is heading toward resistance at 1220. Crossing through this level could result in near-term traction for the equity markets. Some traders may possibly wish to consider going long the December E-mini S&P futures on a solid close above the 1220 level, with a protective stop at 1195 and an upside target of 1275.
Fundamentals
Stock index futures rallied sharply yesterday, as equity traders put aside European concerns and focused on extremely strong Black Friday and Cyber Monday sales from retailers. The US consumer, who has spent the US out of recession in the past, has come out wallets blazing. This flies in the face of many analysts' expectations of a dismal Christmas shopping season this year. The million dollar question now becomes whether or not consumers can keep the above-average spending going through the end of the shopping season. While the retail news was upbeat, Fitch, the last ratings agency with a neutral outlook for the US economy, revised its outlook to negative. Also, across the Atlantic, Moody's warned of possible downgrades to multiple European banks based on the ongoing sovereign debt crisis. A late rumor among traders suggests that S&P may take away France's AAA credit rating "within the next 10 days". If this winds up being the case, it would be a significant blow, considering France and Germany have led the bailouts of other EU nations.
Technical Notes
Turning to the chart, we see the December E-mini S&P contract rebounding strongly off the 1150 level. With this morning's activity, the market has crossed through the 20-day moving average. A close above the average would suggest that a near-term low may be in place. Near-term resistance can be found near the 1220 level, and if the market is able to cross through this price point, relative highs at 1282.50 could be tested.
Rob Kurzatkowski, Senior Commodity Analyst
