Executive Market Briefing from The Research Desk of Efrem Hoffman | Issued Tuesday, Nov. 6th, 2012 |  The Price Path Ahead for the S&P 500

Synopsis of Current Market State:

As mentioned on the October 5th update, we said:

If the price trades below the critical support zone of 2797 to 2795.25 for more than 160 minutes — at any point in the interval of Oct 7th, 9th,  or including the window near the 19th, 22nd into the 24th and up to Oct. 29th, 2012 — then extreme downside risk of well over 100 points in the NASDAQ is a high potential. THE CORRESPONDING LEVEL THAT WILL OPEN UP A MAJOR DOWNSIDE EVENT FOR THE S&P 500 DECEMBER FUTURES IS A BREAK BELOW 1437 (especially high downside volatility will develop when price trades below this levels for at least 160 minutes). The downside risk levels start out at 1426.50, then 1398 to 1393, and 1380.75, 1376.50, 1374 to 1371. 

The lower risk levels are wide open as the market now builds pent up energy for the next leg down in November.

Stay Tuned daily for updates on specific downside time-zones, as well as overhead resistance and base-line support levels.  Special Statements will be posted regularly in the Key Levels Daily Blog at TradingTimeAndPrice.com.

For maximum visibility of market structure development, while minimizing transaction noise, your favorite indicators and market analysis logic should currently be centered on the following time-frames, regardless of your trading style.  

For spotting Bullish S&P market divergences and monitoring counter-trend bounces with your indicators, focus on the 15 min, 24 min, and 35 minute charts.  

For identifying Bearish S&P market divergences and monitoring the resumption of the underlying downtrend, home-in on the 137 and 85 minute time frames.

There remains enough Bottled Energy in both the NASDAQ 100 Dec. Futures and the S&P 500 Dec. Contract, to set off a larger scale chain reaction of selling in November, especially from mid month onward, with potentially the fastest range expansion since the late summer 2011 Euro-Crisis, playing out in periodic waves of panic selling into Q1 2013.

What is most alarming is that the VXX Exchange Traded Fund, a widely followed gauge for future Volatility (VIX levels) is not only starting its ascent from exceptionally low historic levels, but its protracted basing structure has been building latent energy for a sharp spike in November and December. There are three momentum jet-streams in place that are expected to become synchronized on the following time-frames — starting with the 55 min, 89 min, and 144 minute.  When VXX levels trade above the 39.42 level for at least one trading session, volatility should be in lift off mode. Pay particular attention, should this level be taken out top-side in the interval of Nov 15th  to 30th, 2012. The next important volatility date to look out for, and the most telling for the intermediate to long term  outlook is the centered on the time window from Dec 7th to Dec 21st, 2012, particularly when VXX levels are trading above the all critical 41.68 level for at least one trading session. 

This market condition will turn complacent market players into panic-stricken speculators, as the VXX will commence a long and turbulent journey back to the high levels experienced near the depth of the Euro-Crisis in Oct 2011.

In the event that either the recent lows put in on Oct 30th or the near-term risk to the 1385 handle offer interim support, any “dead-cat bounces” should be met with formidable resistance near the price zone discussed below.  Thereafter, there is high potential for a steep and persistent sell off.

Until Mid November, the Time Map indicates that sector rotation and market distribution will become more pronounced, with increasing levels of disparity among both asset momentum flight paths and time-windows of potential risk events; thereby causing range-bound trading markets in this interval — between 1388.25 at the low end and 1440.50 to 1441.50 at the high end. In the event of a dead-cat bounce, 1430.50, 1433.75, 1435.25, 11436.50 are levels where volume would start to lighten up. Long term overhead resistance that was originally in place prior to the breakdown remains positioned near the 1463 to 14565.25 level. Traders will need to pay close attention to the balance point level of 1403.75 — if e-Mini trades below this level, it opens up a very larger move down before month end. Given a lot of chatter and news-flow going into the election and lame duck session concerning the fiscal cliff, all eyes will be on tech-laden NASDAQ for leadership. The most bearish scenario would be one last dead cat bounce above 2710 on the NASDAQ 100 Futures (Dec. Contract) to get the bulls trapped like rats slightly before or near mid-month. Whether the dead-cat bounce reaches this level or not, or materializes with any vigor, the bottom line is that not only the there are many sectors that are incrementally shifting their momentum jet-stream bias to breakdown mode as we approach mid month, but also the weakening momentum is now spreading across a wide array of New York Stock Exchange issues. This tells me with high confidence that the broad markets are at the cusp of a major bear attack — watch for signs to much lower prices by month end, after we pass the momentum cliff, particularly after mid-month — and especially accelerating when key levels, as discussed in the foregoing are breached.

Key interim levels on the next leg down are: 1389.75, 1387.50, 1383.50, 1378

with initial downside risks testing 1390 to 1385.25.

The Market is building pent up energy to do another leg down – one to two orders of magnitude larger than 1987, with regard to the number of synchronized decision-makers that are likely to flood the order book and create a series of toxic volatility events into 2013.

The 1421.50 to 1423.50 level is another important balance zone (separating the bears from neutral activity) for the month of November and December.

That means, if the market decides to oscillate around this price or sell into it (upon breaching this level with volume), it will set the stage for repeated attempts at cracking through the 1390 barrier.

There is one of two scenarios. The first starts somewhere in the interval after Nov. 12th or 13th, with highest risk on or after 16th, as well as 19th, 20th,  into at least Nov 22nd, 28th or 29th, 30th, when the S&P 500 cash market will likely challenge the 1385.25 level. At such time that this price is breached on high volume, the 1297 to 1289.75 price zone, dating back to June 2012, becomes wide open for the bears to attack with fierce velocity into the December/January and February period. The decision-maker momentum jet-streams that would be in control at that time would be sourced from the 221 and 85 minute time-frames, which is quite alarming, given that the orientation of their forward momentum flight-paths are strikingly similar to the 1987 crash, on a scale one to two orders of magnitude larger.

Here are some key intermediate dates to look out for, to crank up your risk-off meter: as early as Dec 7th, Dec 12th, 13th, 14th, 18th, 21st, 25th, 26th, all the way into Jan 24th or Jan 25th, and Jan 29th, Jan 30th, and near Feb 4, 10th, and into 26th, as well as into key dates near Feb 12th, 15th, 19th, 21st, 26th, 28th. Long term Overhead resistance remains firm at 1474.50 to 1475.50, 1477.50, and 1482.50, with its outer tail stretching out towards the 1484 to 1489.75  handle.

There is also a potential setup in place for the Euro. Should it trigger, it could spark a tail-risk event that could send the US Dollar Index rising, and take the S&P 500 cash market back just above the October 2011 lows, near the S&P 1140 level, which would become a real and present danger for 2013. In a similar note, a breakdown below 12639 on the DOW Futures (Dec Basis Pricing) for at least one week, would trigger a long-term market meltdown — challenging the 10,950 level from Oct 2011. There is tail-risk back to 2009 lows as early as prior to April and potentially before year end. From a trading perspective, one thing at a time; and it is the June 2012 and Oct 2011 levels that are expected to be tested, but when the end of April arrives, and if Oct 2011 lows is all the markets can test, then the a time stop would kick in, and the short idea generation would be put on hold for another day — sometime later in June or July and in all likelihood prior to the end of Oct 2013.  This down-wave may even be more pronounced, but time will tell.  In the mean time, be on high alert for volatility fireworks after this dead-cat bounce transforms into the first phase of a violent bear market this November and December.

On behalf of TradingTimeAndPrice.com, you are welcome to join me live on FuturesTalk On-Line Trading Educational Forum, for featured updates on high conviction turning points, as I monitor these market developments in real-time. A news announcement will be listed to indicate the time and dates of these special educational events.

TradingTimeAndPrice.com is currently monitoring momentum pressure and upcoming order-flow changes in the key decision-makers and market players — across a wide scope of time-frames — that are influencing a bearish market structure for the NASDAQ 100 Futures market  (December Contract).

This Wednesday, November 7th, 2012, 5:00PM – 6:00PM at the St. Andrew’s Club and Conference Center in Toronto, I will be on a Bloomberg Panel Discussion on the State of the Market at “Toronto Charts Day,” where David Scanlan, Canada Bureau Chief of Bloomberg News, will be moderating 4 veteran strategist and portfolio managers on their year-end market outlook and prospects for 2013.  

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