S&P 500 Futures Forecast December 31, 2012, Technical Analysis

The S&P 500 futures fell slightly during the session on Friday, but remained above the vital 1400 level. This area is support for a very clearly defined consolidation area that runs all the way up to the 1440 level. With that being said, we feel that this market has more upside than down as we are so close to the bottom of this recent consolidation area. However, headlines will continue to dominate the movement and as a result anything that comes out US congressional members mouths could move this market.

If we do manage to break down below the 1400 level, it would be a sign that things are taken a much more ominous tone in Washington DC. If that happens, 1380 will be the first up, followed shortly behind by 1340 if we really can keep the momentum going. Beyond that, we think there is more of a chance of this market takes off to the upside based upon a deal getting done. We don’t necessarily think that it will be a permanent change to the upside as there are many headwinds out there, but there will be a high chance of a “relief rally” once we finally get past this process.

Alternately, there is the possibility that Congress comes out with some type of patchwork that disappoints the markets, and this of course would send markets lower as the psychology of the public is beyond “kicking the can down the road” anymore. With this being the case, the next problem that we will run into will be the debt ceiling limit sometime in February. Because of this, it looks like this cycle of markets reacting to brief comments out of various members of Congress will continue.

Ultimately, we feel that we are at a bit of a crossroads in this marketplace. Overall, we think that profits are strong with companies, and this should continue to push prices higher. Also, you have to remember that the Federal Reserve has decided to expand its quantitative easing, and this of course normally has assets rallying over the long run. However, we are certainly see signs of economy slowing around the world, and as a result we could be getting close to a bit of a trend change. For the time being though, we simply need to pay attention to the consolidation area between 1400 and 1440 for our next trading signal.