WELCOME TO THE ROLL

S&P UP $ OF THE LAST 5 DAYS

The triple top at 1266 is proving to be quit a level right now. No matter how much the market's huff and puff,  they just can't knock out that upside level. Or at least not right now they can't. We started saying last week that the S&P would correct going into the Merkel / Sarkozy meeting and they held tough until yesterday's sell off. When the markets move like that, the  sentiment shifts and traders who were long end up short. This is not the time of the year for that unless a major blow up occurs among the EC's 17. A fellow trader asked me if I thought the US markets were insulated. The answer is yes but that does not mean the markets won't still have “false starts”.  We love writing about the markets but over the last few days as the roll over started you can see that most of the volumes are coming from the spreads. This has affected the liquidity in the S&P futures dramatically. At times the ESHs top bid / offer has been less than 100 up. This means the algo rhythms / program traders are making up the bulk of the trading volume and that makes it even harder to trade.  We also think after the expiration people are really going to start to cut back as we go into the year end.

Its 5:30 am and the SPH is up 9.8 handles at 1240.00, crude is up .55 cents, gold is up 11 and the EC is up 61 at 134.??  In Asia 10 out of 11 markets closed lower (Heng Seng down 2.73%) In Europe 7 out of 13 markets are trading higher (DAX up 1.6%) The main headline “Latest EU Deal Still More Can Kicking” and “Moody's Downgrades Three French Banks”  While many thought the EU was getting its act together we disagree.

Every day it seems like it's one step forward and two or even three steps back. That said the SPH did pull back yesterday and is up sharply this morning. Below is the Ned Davis expiration cash study for the DEC expiration. Today (the Friday before the DEC expiration) has been up 18 / down 9 of the last 27 occasions. Monday has been up 16 / down 11 out of the last 27 occasions, Tuesday is the same; up 16 / down 11 of the last 27 occasions. Wednesday has been up 14 / down 13 of the last 27 occasions, Thursday is the only down day; up 11 down 16 and expiration Friday has been up 19 / down 8 of the last 27 occasions. So what this points to is an up expiration. And the Monday after has been up 19 of the last 27 also. We also have the all important mid month re-balance where they start to market up the small cap stocks.

Our view? We all know nothing goes up or down forever in these markets. When the S&P gets overly long or too short is moves the other way. If it is backed by global macro problems they the market move even further. That said we still have 16 trading days left in the year and we still think a break out to the upside is possible. The S&P has to first overcome the 1266 triple top. As for today we are again looking to sell an early rally and then look to buy the weakness when they go down.

As always PLEASE use stops and keep an eye on the 10 handle rule…
VOLUME 36.5k SPZs, 39.5k SPH, 2.44mil ESZ and 1.28mil ESHs traded
SPREADS: 29k SPZ/H and 470 SPZ/M spreads traded
FV: S&P, NASDAQ

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WELCOME TO THE ROLL

The switch day is always confusing as traders determine if they are watching the expiring contract or quickly jumping over to the new front contract. We subscribe to watching the expiring contract for technicals and allowing the new front month a day or two of volume and price action for price discovery. Generally, we are more comfortable to start with the new front month on the Monday following the switch.

Thursday started with some disappointing Asian economic numbers and the European interest rate watch. As expected, the Bank of England held steady and the European Central Bank lowered by .25% also in line with expectations which added some support. Then there were the early headlines of yet another backstop for the Euro Zone that propelled the Globex session to 1266.00 overnight highs shortly after the jobless claims came in a little better than expected. The RTH's December contract opened 11 handles lower at 1252.50-1253.50, making an early HOD at 1255.40.

After that is was all downhill as the little rallies through the day were met by willing sellers. By 11:00 Smith Barney bought 3.6k March big spoos as the locals and market forces kept pressure on the equities. The 30yr bond was up nearly a point, VIX was back above 30.00 and crude was testing the $98.00 area down $2.50. There was a small late day rally, but this headline put the kaboosh on that… MTS DESK (02:40:51 PM): GERMANY REJECTS DRAFT PROPOSAL AND BANKING LICENSE. The cash close showed 400M to the sell side, the cash close traded 1234.50 area in the SPZ before settling at 1236.00 down 28 handles. DJIA closed down 199 points and just under the psychological marker of 12,000.

Yesterday's MrTopStep's Video Mark from Optionpit  http://mrtopstep.com/2011/12/12-8-11/

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ECONOMIC CALENDAR: http://mrtopstep.com/economic-calendar

CONTRIBUTORS' CORNER

 SPX & GOLD CHARTS ~~ Roger Volz, BGC

SP 500 5 min chart shows short term technical's swinging from OB > 1271.50 with first OS targeted < 1248.00

Gold 5 Min Chart

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