Morning Es Trading

Tuesday's Market Review

Three months ago, everyone was focused on Apple (AAPL) as it pushed toward $700. Heck, I doubt it would have surprised anyone if CNBC placed a bug in the lower right hand corner of the screen counting down the points until AAPL was worth a trillion dollars. Fast forward to today, and all anyone in the media wants to discuss is the fiscal cliff and how a failure to reach a bipartisan compromise will send us into a dark and treacherous recession. By the way the folks in the media sound, you would think the Es was closer to 1200 than 1450. But that most certainly is not the case. In fact, the Es is a whopping 2.5% away from the year's high (1468).

5-minute Es

Source: eSignal

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The Es opened Tuesday's session above 1423.50, and I as discussed in the morning trade notes, the persistent buying from above that level put the bulls on exceptionally strong footing. A quick glance at the chart above shows how strong demand was above 1423. Early price momentum was so strong, in fact, that the Es sliced straight through 1427.25 and continued on into the low 1430s.

The afternoon fade (from within the 1430.25/1431.25 resistance area) was brought to you courtesy of Senator Reid's pessimism toward getting anything accomplished ahead of the Christmas break. Lucky for the bulls, demand remained incredibly strong at 1423.50. The bullish rejection from that level was remarkably strong. As for the closing rip higher, that, too, was politically driven. Only this time it was the result of chatter that Boehner had sent over a new counter proposal to the White House.

In the coming days, I believe it's a fair bet that we will have to deal with some selling. And while everyone will no doubt be focused on the low- to mid-1420s and the 50-day SMA, I want to remind everyone that the pivotal downside support level is still 1395. Only a complete collapse in demand from within the mid-1390s ruins the coming holiday season for stock market bulls.

Wednesday's Es Trade

Today's session is all about the Fed. We begin with the Federal Open Market Committee (FOMC) meeting announcement at 12:30 p.m. EST, then the FOMC will  issue its economic forecasts at 2 p.m. EST. We will end the day with Chairman Bernanke's speech at 2:15 p.m. EST. Whether or not you like the idea of additional quantitative easing, that is what is expected to be detailed in this afternoon's 12:30 p.m. EST announcement.

Current expectations are for the Fed to replace its soon to expire Operation Twist plan with a program of outright purchases of long-term Treasuries. The figure most often floated is in the vicinity of $45 billion (on a monthly basis). This is going to come down to a game of expectations. If the figure is significantly larger or smaller than $45 billion, that would likely constitute a surprise, and surprised markets often act like rabid animals forced into the corner of a small room.

Though not getting near the media coverage, it is worth noting that OPEC is meeting in Vienna today, and the members are signaling that they'll keep the status quo in regards to current output targets (30 million barrels per day). For those trading the (Cl) crude futures contract or the U.S. Oil Fund (USO), the $85 level seems to be a pretty rock solid line in the sand on a short-term basis. I would expect a close above 87.50/88 to inject a bit of life back into the contract, so for my money, I would avoid this auction all together until we close outside one of those boundaries.

10-minute Es

Source: eSignal

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Turning our attention to Wednesday's Es auction, my primary area of interest will be 1429/1429.50. As long as demand remains intact within the upper-1420s I expect the consensus among short term traders to point toward higher prices. Near term targets are 1433.75 (tested in overnight trading), 1438.25 and 1445.50/1446.50. Should the market catch an especially strong bid during today's session, I would treat the mid-1440s as an upside extreme, and I would have zero interest in chasing price momentum is said extreme.

As demand weakens near 1429/1429.50, consideration must be given to a backtest of 1421.75/1422.50 (slightly beneath yesterday's Senator Reid inspired selloff). In my view, failure to hold within the low-1420s pokes several large holes in the currently powerful bull thesis (which to be frank, revolves around price momentum). As the Es slips beneath 1421.75/1422.50, I expect recent and uncommitted buyers to jump ships like petrified rats. However, more steadfast buyers will likely stick it out until the contract begins to lose 1417.50 and the mid-1410s.

To boil this down into a simple theme: All trading above 1421.75/1422.50 supports buyers and their quest for the mid-1440s.

Current conversion formula: Es (December contract) value X .100489 = SPY Value:

1453.50 = 146.06***

1445.50/1446.50 = 145.26/145.36**

1438.25 = 144.53*

1433.75 = 144.08*

1429.50 = 143.65**

1421.75/1422.50 = 142.87/142.95***

1417.50 = 142.44**

1410.75 = 141.76*

1401.50 - 1402.25 = 140.84 - 140.91*

1399.25 = 140.61**

1394.25 - 1395.50 = 140.11 - 140.23***

At the time of publication, Byrne had no positions in the stocks mentioned.