'TIS THE SEASON

Chart by REALTICK CNN MONEY SURVEY

By Danny Riley

Some traders don't care if it's a holiday or a special occasion, you just can't pull them away from their trading screens. You can talk to them and they act like they are listening but they really aren't. They don't care; if the ES is moving, they are watching.

Wednesday's 5-handle trading range and Thursday's abbreviated Globex session pushed the ESZ right up into its resistance from 1389 to 1395. It's amazing how quickly things can turn, and you know what? The S&P futures have rallied 50 handles in only five days. And you know what else? Not all the shorts have covered. That is how this game is played. The S&P (GSPC1) rallies above 1450 and everyone gets long at high prices. Then the S&P sells off down to 1350 and everyone gets short below. With Thanksgiving season pretty much in the rear-view mirror, it's time to start talking the historical patterns that occur during the Christmas holiday. You know the Santa Claus rally? While we already know about the best six months for stocks (November to April), the year-end rally in the small caps actually starts at the end of October into November. This year's big concern is with the fiscal cliff approaching, will Santa be naughty or nice to Wall Street?

Tough times ahead: The fiscal cliff is not the only worry right now. As the European Union starts its meeting in the Netherlands to nail down a 7-year budget, British Prime Minister David Cameron is already saying the deal is no good. In the United States the clock is ticking on the president and Congress to reach a deal. After getting past the seasonal weakness in September, October and the beginning of November, the markets are now heading into their best seasonal time. After being knocked down, the S&P has come flying back and the big question is can the markets keep going up or are they going to pull back again as the year comes to a close? Personally, I think there is going to be a compromise on the fiscal cliff, but that doesn't mean the S&P is going to keep going straight up. What we have noticed about the year end seasonals is that they do not kick into gear until mid- to late December. The fourth quarter expiration week tends to be the most bullish triple witch week. According to the Trader's Almanac, the week of the Dec expiration has been up 16 of the last 20. If by then the government has not come up with a compromise, it won't matter anyway.

We think it's time to start thinking ahead. There is a good possibility the S&P will stage some type of year-end rally, we are just not sure it will keep going up in the beginning of 2013.

Danny Riley is a 34-year veteran of the trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.

Our view:

Today is going to be short and sweet. Most of the big players will not return until next week. The range in Globex over the holiday for the ESZ is 1380.75 to 1393.75 on 210k contracts. The most important thing on a day like this is not to lose any money. We are not telling you not to trade, but personally we are taking a step back. I still see resistance at the 1395 but not sure what that is worth. If you are going to trade, please keep an eye on the 10-handle rule and make sure you use stops.

Today's data:

It's 7:00 a.m. and the SPZ is up 2 handles at 1390.25, crude is down 32 cents at 87.06 and the EC is trading 1.2906, up 78 ticks.
In Asia 8 out of 11 markets closed higher (Shanghai Comp. +0.58%, Hang Seng +0.79%).
In Europe 9 out of 12 markets are trading higher (CAC +00.7%, DAX +0.59%).
Today's headline: “Global Shares Gain as Greek Deal Nears.”
Economic calendar: Today: Black Friday – NYSE closes at 12:00 CT / CME closes at 12:15pm CT
Globex volume: 210k ESZ and 1.8k SPZ trade
Fair value: S&P +3.5, NASDAQ +7.75

MrTopStep Closing Print Video: http://www.mrtopstep.com/videos/?id=34716
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