Market Outlook

Friday had some horrible breadth reading, but over all volume was still holiday light. Many international markets seemed to take it worse on a percentage decline basis than we did. It sure did seem like someone came in right at the open and started buying futures to support the market. I have pointed out the declining breadth and divergences that have shown themselves over the last couple weeks. A leader stock like Goldman has lagged badly, as have the SOX, and the emerging markets at the most recent high. Many foreign markets did not confirm that high and have lagged our DJIA.

The Dubai news is just that... news. I am not surprised by it, and as I wrote earlier, I seriously doubt that this will be the last entity that is unable to roll its debt before this credit cycle comes to its contractionary conclusion. It may be the grain of sand that starts a little avalanche however. We will just have to wait and see. Its interesting to note that TBills traded negative a few days before this news item hit the wires. Think anyone knew there was a credit event on the horizon?

Right now, I think many managers may be more than happy to lock up this year and fore go the possibility of a Santa Claus rally. I also think that the houses that make up what is left of the Street may need to get their leverage down again. All this adds up to rallies that are sold. There is a big gap above that some may gun for and this being a Sunday night the pattern has been to buy futures in the evening and set up for a big Monday morning. Those big days up are often sold for the rest of the week recently, though (thus my theory on the Street trying to get their balance sheets down). So we may see this play out tomorrow. I am comfortable holding a short through it if need be. If we see that gap filled handily and more than a couple of leaders acting well, I can cover for a small loss. But, generally I look for lower prices at least for a couple of weeks and possibly decent downside. I would think VIX would get closer to 30 and the McLellan Osc to get closer to -70. But those are just guesses. We will just have to see what develops.