Gap Up Signal

Despite the constant Europe weakness, I am expecting a gap up based on it being 1st day of the month, slightly oversold conditions, and the intraday trade for today.  I have closed out my shorts and will put them back on tomorrow or later in the week. 

Europe Falling Apart

Europe seems like it sells off every day.  The euro also.  Yet there is no panic.  It is a controlled selloff and weakness just doesn't last.  Traders are quick to buy the dip which is a recurring theme.  I am still bearish on this market.  The path to the bottom will be longer and slower than expected.  Not much of an edge either way so I will mostly watch.

Not Going Down Much

We have a couple of things favoring the bulls, which is positive seasonality on the 1st of the month and into the nonfarm payrolls report, and also we've got a bit of fear from Europe which means there isn't much more to go on the downside.  The best bet is to expect continued range trading for the rest of the week (slightly higher bias), and then we should have selling next week which will mark a short term bottom. 

Range Trading

We are staying within a range of 1175 to 1200 for the past couple of weeks.  This should last till the nonfarm payrolls report if there is nothing crazy coming out of Europe.  Europe will determine whether we break down ahead of nonfarm payrolls or after.  It looks inevitable that we go lower within the next 2 weeks.  If we get close to 1200, I will look to add to shorts. 

Heat in the FX Market

The non-dollar currencies continue to bleed.  The Australian dollar was a very crowded long and that is getting hurt the most.    It is surprising to the see the market hold up so well despite the strong dollar.  The crowded positions seems to be all short dollar.  Maybe the recent weakness in China is a warning sign that we're close to the upper limits on the risk trade.  Europe is certaintly not doing its part to keep the global market afloat.  This market remains vulnerable to a deep correction.  Maintaining my positions into the weekend and for the foreseeable future.

European Pressure

Spain 10 year bond yields continue to rise, we are making new highs.  The heat is coming, the bond vigilantes are putting Spain to the test.  This is giving us a healthy gap down on the futures.  Until the mess is cleared up in Spain, a cloud will be hanging over this market.  No strong feeling about the intraday action today, I will likely just watch.  I am leaning towards further weakness after the open.

Be Back Friday

Happy Thanksgiving.  I will be looking to reshort to a full position soon.

Whistling Past the Graveyard

The bond vigilantes are going hard after Portugal and Spain.  Spain is the biggie.  Thanksgiving Day gives the turkeys an opportunity to put their heads in the sand.  Ignore the current realities in Europe and stuff themselves and go shopping.  I wouldn't be so concerned about Europe if the market wasn't so complacent.  We are whistling past the graveyard.  Spain 10 yr bond yields are above the highs in May when we had widespread Euro panic. 

Wash Rinse Repeat

Are we repeating the weaken on Monday, selloff on Tuesday, stabilize on Wednesday, gap up and go higher on Thursday, and stabilize and edge higher on Friday pattern?  It is pushing forward the bullish Mutual Fund Monday phenomena that we had for so long to bullish Thursday and Friday.  The market continues to chop in this little range, 1172 on the bottom, 1199 on the top. 

Just out:  Better than consensus consumer sentiment.  I hope the positive economic data gets the traders bullish, I want to reload to a full short position at good prices. 

Weaker Open than Expected

Although we are gapping up, it is quite small and well off the overnight highs set during the Asian hours.  There is underlying weakness in Europe and it is weighing down this market.  The market badly needs a flush out to clean out the weak hands.  Everyone points to positive seasonality, one wonders if that is breeding more complacency.  What everyone knows in the market isn't really worth knowing.  Still believe we will see lower prices next week. 

Partially Covered

I still have a short position, but just lightening my position, as I expect there to be about 7 to 3 odds of a gap up tomorrow.  But I do expect lower lows intraday tomorrow.  We are not done with the downside yet. 

Looking for a Weak Close

Are we gonna get another stick save in the final hour to give holiday cheer to the bulls?  Will Bernanke push the buy button?  I am leaning towards a weak close near the day's lows.  Worries over Korea and Europe will have traders leaning on any bids towards the close.   Given the amount of optimism that was built up over QE2, I hesitate to go long.  I want to wait for the correction to mature some more before switching to the long side.  

Real Problem is in Europe

North Korea is a smoke screen today for the real problem which is Europe.  The euro is gettting crushed today.  I am looking at traders flocking to gold as a safe haven and that seems like mindless trading to me.  To some extent, the geopolitical tensions have kept oil from falling apart.  But when things in Korea simmer down and Europe continues to get worse, you should see capitulation. 

Of course, these are bad case scenarios.  The market is about calculating probabilities.  The probability of a sustained rise in the market is much lower than the probability of a sustained pullback. 

Reasons to Sell

Suddenly the market has found a lot of reasons to sell after ignoring potential bad news for so long.  North Korean attack on South Korea, European debt concerns, and the insider trading probe provide convenient excuses to sell.  I would have preferred us to gap down on no news rather than all these things to worry about, but I still expect lower prices after the open.  Last week's gap at 1177 and the lows around 1172 are natural areas of support. 

Gap Down Signal

I have gotten a gap down signal and expect lower prices tomorrow.  Positive for the bulls is the outperformance of small caps and the Nasdaq risk names.