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December 17-23 : Options Expiration Week and “Death Cross” Formation on NASDAQ Index!

December 16, 2012
By

(Premium Content — Happy Holidays!)

(Support and resistance levels for index price movement are located at conclusion of this article)

      Market analysis for the upcoming week will include discussion of several technical indicator formations forming on the current price action charts! Market indicators and formations existing in the current weekly and daily price charts are in conflict with each other.  Such conflict creates “index divergence”, with one index presenting a “bullish” position and another index presenting a “bearish” position.

     This is understandable, as “fiscal cliff” tax and spending policy is unresolved.  Resolution which accomplishes true fiscal responsibility or accountability is improbable.

      Additionally, this is December’s options expiration week”, generally adding increased price action volatility to weekly trading.

     As most traders are aware, many market technicians watch the “crossover” of the fifty and two-hundred “daily moving averages” in order to assess overall “bullishness” or “bearishness” of the markets.  Worthy attention is paid to both “Golden Crosses” and “Death Crosses”, as strong moves can commence following such formations.      

     The NASDAQ e-mini futures contracts  have closed below the fifty-day moving average the last two trading days, below the 2560 area.  Support for the index futures is currently at area of support between 2575 – 2590. The below chart shows the existing “Death Cross”, moving averages, and support / resistance areas of the NASDAQ futures.

121216_NQ

     In comparison to the NASDAQ futures contracts, the S&P 500 futures contracts had two daily closes  below the fifty – day moving average in early December, but never followed through to form a “Death Cross”.

In an attempt to reclaim that price point, the index has since closed above the significant moving average and is in a “bullish” presentation.

121216_ES_50_200

     In the above chart of the S&P e-mini futures, the position of the fifty-day moving average as compared to the two-hundred day moving average is in a “bullish” position. 

     XM Strategy Systems software is also indicating strength of the current market “bullish” trend of the S&P 500 Index futures, as is indicated by the teal blue price bars and other proprietary factors.  Therefore, technical analysis of the two indexes, the NASDAQ and S&P 500,  is that they are in “divergence”, contributing to the ambivalence seen in the current political situation of the “fiscal cliff”.

     There are many methods analysts use to examine a price bar chart.  Looking at the same NASDAQ chart in an additional manner, one can see that an “inverse head and shoulders” formation is present.  If the NASDAQ futures reverse direction, as could occur if the slightest “news” is announced which could be interpreted as positive as regards the current  political dilemma of the “fiscal cliff”, it is possible NASDAQ futures contracts could reclaim the fifty-day moving average and at that point, both indexes could be considered “bullish”..

     121216_NQ2

     The divergence of these two indexes has given us “clues” as to the possibilities for this week’s trade activity.

     This Friday is also expiration of monthly option contracts for equities, certain index options, etc. Volatility typically increases during “Options Expiration Week”. This additional volatility increase, in combination with updates as regard the “fiscal cliff” discussions, could result in a dramatic move in the market

121216_ES_WeeklyDojiBar_ReversalBar

     The weekly price bar of the S&P e-mini futures contracts closed the week by  forming a “key reversal bar” and “doji”. The weekly price bar closed lower, following five weeks of higher price action. A “doji” bar by definition is a bar of “indecisiveness” and “ambivalence” – very descriptive of the current market.

     Support and resistance areas for the S&P e-mini futures are as stated below:

S&P E-mini:

Bullish Resistance:  1409 – 1416

                                       1421 – 1426

                                       1444 – 1451

Bearish Support:      1404 – 1406

                                       1399 – 1402

                                       1394 – 1396

                                       1389 – 1391

Average Expected Weekly Range:

                                       37 – 42 Points

Stop for Trade of Weekly Price Bar:

                      Move stop to 1416.50         

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One Response to December 17-23 : Options Expiration Week and “Death Cross” Formation on NASDAQ Index!

  1. [...] A recent example may be found here, an excerpt our newsletter for the week of December 17, 2012  –Weekly Market [...]