S&P 500; US Indexes Fundamental Forecast – December 5, 2016

The major U.S. equity indexes closed mixed on Friday. Some traders said the price action was fueled by the mixed U.S. Non-Farm Payrolls report. Others said it was uncertainty over the Italian referendum that restricted the buying and the volume.

In the cash market, the benchmark S&P 500 Index closed at 2191.95, up 0.87% or +0.04%. The blue chip Dow Jones Industrial Average finished at 19170.42, down 21.51 or 0.11%. The tech-based NASDAQ Composite ended the session at 5254.98, up 3.87 or +0.07%. The popular December E-mini S&P 500 Index closed at 2192.00, unchanged from the previous session.

The price action suggests that the buying spree triggered by the surprise victory by President-elect Donald Trump may be over. However, the Dow and S&P are still lingering near their all-time highs while the NASDAQ has already started to sell-off. Leading the way lower in this index is the FANGs (Facebook, Amazon, Netflix and Google).

The price action in the NASDAQ suggests that investors may be preparing for a new economy under the direction of Trump. One that favors infrastructure over technology. This may be the reason why the Dow is still being supported.

Rising oil prices helped spike the Dow and S&P 500 Index higher last week, but a decline in Utility stocks helped offset these gains.

Forecast

If the Italian referendum was a key issue last week then we should know for sure shortly after the European opening. The news services are saying Italian Prime Minister Matteo Renzi will resign after suffering a defeat in a referendum over his plan to reform the constitution. Traders are anticipating problems with the country’s brittle banking system in response to the resignation, but all I’m seeing is a steep sell-off in the Euro. Perhaps there will be more to come later.

If there is a negative reaction later in the session, then this is likely to be part of the correction process currently taking place in the U.S. indices.

The December E-mini NASDAQ-100 Index has already begun the process, hitting a key short-term retracement zone at 4721.50 to 4683.00 on Friday. We could see a technical bounce on a test of this zone, but if it fails, sellers will likely set their sights on the “Trump” low at 4558.50.

The December E-mini S&P 500 Index ended Friday session testing a short-term retracement zone at 2180.75 to 2173.00. Crossing to the weak side of this zone will indicate increasing selling pressure. If the selling intensifies over the near-term then look for an eventual test of 2121.00 to 2099.25.

The December E-mini Dow is the strongest of the major indexes. However, if oil prices start to sell-off then traders may decide to book profits at current price levels. Its major downside target is 18317 to 18104.

I’m anticipating a Santa Claus rally this year, but I think it will start after sellers have cleared out some of the weaker longs. I don’t like the market at current price levels.