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Market Wrap

Guinea Pig Market

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Guinea Pigs are inquisitive, friendly animals. Not unlike the current market environment, they should be treated gently - they can be nervous creatures.

It was a choppy session of trade today as traders digested another round of weak economic data.

Employment data released prior to the opening bell made for a lower open, but after some intra-day volatility, buyers held their ground above key levels of near-term support, driving the major averages higher by the close into tomorrow's key interest rate decisions out of the U.K. and Europe.

Global Economic Calendar -

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Preliminary jobs data from Challenger and ADP ahead of tomorrow's Department of Labor weekly jobless claims had traders spooked at the open.

Economists are forecasting jobless claims to have risen an additional 540,000.

Final nonfarm productivity of +1.3% was slightly better than the initial estimate of +1.1% in the third quarter, but the final figure (a key inflation combatant measure monitored by the Fed) was well off the +3.6% in Q2.

Unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, rose a revised 2.8% in Q3 after declining 2.6% in Q2.

Into the close, the Reserve Bank of New Zealand slashed its Official Cash Rate 150 basis points to 5.00% from 6.50%.

Tomorrow morning at 07:00 AM ET, the Bank of England will announce changes in its monetary policy. Economists currently look for the BOE to lower its Official Bank Rate by 100 basis points to 2.00%.

The British Pound CurrencyShares (FXB) $147.66 -0.81% action suggests that market participants fully expect further BOE easing.

Then at 07:45 AM ET, the European Central Bank will announce changes in its monetary policy. Current consensus is for the ECB to lower its Minimum Bid Rate by 50 basis points to 2.75%.

The Euro CurrencyShares (FXE) $127.16 were little changed ahead of tomorrow's announcement.

Crude oil prices did see a knee-jerk reaction higher to $47.95 after the EIA said weekly crude oil stockpiles fell for the first time ten (10) weeks with a draw of 456,000 barrels to 320.37 million barrels.

But buyers of the black gold remained tentative with crude oil inputs falling by 258,000 barrels/day to 14.58 million barrels as refiners cut back capacity to 84.34% from the prior week's 86.16% of operable capacity.

My number of days of crude oil supply remained unchanged at 21.9.

January Crude Oil futures (cl09f) settled down $0.17, or -0.36% at $46.79.

The U.S. Oil Fund (USO) $38.11 -1.01% was off $0.39.

Then at 02:00 PM ET, the Federal Reserve Board released its anecdotal Beige Book report with all districts reporting overall economic activity weakness since the last report.

S&P 500 Index (SPX.X) - 30-minute intervals

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As you can see, the SPX and its volatility measure VIX.X were still stuck between what looks to be some key near-term levels of SPX support/resistance of 818-882 and 60-70 at 02:00 PM ET.

Indeed a sizeable "range" for the SPX, but not unlike a Guinea Pig, that's the range near-term that traders must handle gently and perhaps understand that traders and investors are a bit nervous with the recent volatility.

In some of yesterday's intra-day commentary (see 03:15 PM ET and 05:01 PM ET posts), I began pointing out some rather "small" head/should bottom patterns in the SPX and RUT.X.

Now you're wondering what the Guinea Pigs "dog tag" of D.D.X is all about.

That's a trader's Guinea Pig index and my "chart of the day" of what I think we as traders should begin to monitor.

Can the Disk Drive Index (DDX.X) 50.74 +6.84%, today's second-best upside performer in the U.S. Market Watch be the early sector/index of what is yet to come?

Disk Drive Index (DDX.X) - 60-minute intervals

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Now ... the above chart was one I "found" at today's close. I was clicking down the U.S. Market Watch of charts and noticed that on a Daily Interval chart, the DDX.X had actually closed ABOVE its 21-day SMA (not many indexes/sectors CLOSED above their 21-day SMA), so I thought I'd take a look at the DDX.X and see if it had a reverse h/s pattern like the major averages.

Here I set up the use of retracement, as a technician will with the head/shoulder pattern.

Place the 0% at the "head" and then you fit the 50% at the interpretive "neckline."

The PATTERN OBJECTIVE is the resulting 100%.

Now, the FAILURE of the pattern, using the DDX.X as an example would be a trade back BELOW the LEFT SHOULDER of $43.28.

The "Guinea Pig" can be IMPORTANT if traders are now alert to, and PLAYING other patterns.

I should note, NOT only BULLS are monitoring these type of observations. BEARS are likely doing the same, and if they look to be coming to fruition, BEARS could come in and cover, locking in some gains instead of watching them evaporate.

SPX and SPY - 60-minute intervals

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Using the DDX.X as an example, we can perhaps start to have a plan, or begin to be alert that there's at least one (1) index/sector showing some sign of the h/s bottom pattern underway.

I wanted to turn the VOLUME on for the SPY chart, but it is all messed up.

A strong h/s pattern will see VOLUME in one, sometimes two places. One is the RIGHT shoulder of the pattern; the other is at the NECKLINE.

Be gentle with things.

Closing Internals

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You can really see the "swing of emotion" from today's internals. Just look at the advance/decline line swings, the up and down of the TRIN and TRINQ. The PRICE action of the various equity-based indexes (NYSE Comp to QQQQQ).

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