The market opened significantly lower this morning on the dollar strength and we had a non-trending day professional gap (how boring) as we held below the trading range we have been in since the beginning of the month. Let’s see if we get a test of the crucial SPY 108 level which is a gap support and the location of the 50-day moving average. For now the assumption continues to be that we are trading range bound between SPY 108 and SPY 112. Until we break out one way or another, there is absolutely nothing to do here but going long at SPY 108 and shorting at SPY 112, this has been the trade for the last 3 weeks. Holding below that SPY 108 level would cause more selling pressure and a potential pullback toward SPY 103 and hence change the short-term picture.

Economic Data:

• Wednesday: Wholesale Inventories m/m (-0.6%)

Evening Reading:

• A Trade worth making (SMB)
• What every short-term trader should know (TraderFeed)
• Lowry research: Rally getting tired but not over (Trader’s Narrative)
• Market taking a breather (Bespoke)
• Millions in US drink contaminated water (NY Times)

Popularity: 3% [?]

The third failed breakout in three consecutive days occurred on Friday as a much better than expected job data was not enough to get the market to close above that stubborn SPY 112 area. Failed breakouts tend to lead to a steep countermove and we saw a steep selloff all the way down to SPY 110 before the market recovered some of the losses. This may be the sign of a topping process. However, not much has changed as we are still hovering near the rally highs and not seeing any follow-through to the downside at this point. We are also seeing notable strength in the Russell 2000 recently which could provide fuel for the market to finally break through that SPY 112 barrier which is also very close to that the widely watched 50% fib retracement. Finally, we saw a strong USD bounce and a close above the 50-day moving average so this is worth keeping an eye on as the carry trade is definitely one extremely crowded trade which could reverse in a steep manner. Weekly levels to watch remain SPY 108 (remain bullish above that level), and SPY 112 area which the market has been unable to remain above on a closing basis. My take is that we are working on getting through that area toward the ES 1150 but I don’t want any part of that until the smoke clears.

Economic Data: Little economic data next week

• Monday: Consumer Credit m/m (-9.8B)
• Tuesday: IBD/TIPP Economic Optimism (49.8)
• Wednesday: Wholesale Inventories m/m (-0.6%)
• Thursday: Trade Balance (-37B), Unemployment Claims (465K), Federal Budget Balance (-136B)
• Friday: Core Retail Sales m/m (0.6%), Retail Sales m/m (0.6%), Import Prices m/m (1.2%), Prelim UoM Consumer Sentiment (68.7), Business Inventories m/m (-0.3%)

Weekend Reading:

• Employment chart round (The Big Picture)
• Financial transaction a long shot (The Deal)
• Persistence and resilience in trading (TraderFeed)
• What moves market (TraderFeed
• Stages of successful trading part 2 (SMB)
• Al Gore to lose Oscar? (ZenTrader)

Popularity: 3% [?]

We had a fairly uneventful low volume Thanksgiving week until the Dubai news caused significant weakness on foreign markets on Wednesday night. The SPY opened 30 points lower on Friday morning and recovered some of the overnight weakness to return inside the trading range we have been in the last two weeks above SPY 109. We saw above average volume in a Holiday-shortened half-session. Next week, we have the BLS unemployment data at the end of the week which is always a big deal. We have been trading range bound for quite some time. SPY levels to watch remain the same with SPY 108 a short-term level that if it were breached would change the short-term picture, SPY 109 the lower level of the trading range, and rally highs at SPY 112. The financial sector and small caps continue to glaringly weight on the market and Friday’s action put some significant short-term technical damage in those sectors. Next week should be fun as we will see broader participation. We have to continue to respect this market on the long side but IMO it’s setting up for a brutal awakening. What is the room for error at these rarefied levels?

Economic Data:

• Monday: Chicago PMI (53.1)
• Tuesday: ISM Manufacturing PMI (54.7), Pending Home Sales m/m (-0.2%), Construction Spending m/m (-0.3%), ISM Manufacturing Prices (65.1), Total Vehicle Sales (10.5M)
• Wednesday: ADP Non-Farm Employment Change (-145K), Beige Book,
• Thursday: Unemployment Claims (480K), Revised Nonfarm Productivity q/q (8.5%), ISM Non-Manufacturing PMI (51.6),
• Friday: Non-Farm Employment Change (-111K), Unemployment Rate (10.2%), Factory Orders m/m (0.2%)

Weekend Reading:

• Sentiment remains unusually bullish (The Pragmatic Capitalist)
• A tale of two housing markets: No recovery at the top end (Trader Feed)
• Avoiding the risk of ruin (Trader Feed)
• Food Stamps Use soar across US (NY Times)
• Market Leadership deteriorates (Trader’s Narrative)
• Fox News.Makes.Best.Pie.Chart.Ever (The Big Picture)

Popularity: 4% [?]