Editor's Note:

It is starting to look pretty ugly for stocks. This week alone (three days) the S&P 500 index is down -4.4%, the NASDAQ -4.3%, and the small cap Russell 2000 index is off -6.2%. The last 24 hours has delivered a small parade of bearish economic data with PMI numbers in Europe and China coming in below expectations. Then there is the German bond auction today, which saw poor demand. It seems that no one wanted to be long stocks ahead of the long weekend. Granted the U.S. markets are open for half a day on Friday (they'll be closed tomorrow for the Thanksgiving holiday) but trading volume will be very light on Friday.

As a matter of fact, the light volume on Friday could cause problems. Stocks are oversold and due for a bounce. If equities start to rally there could be a short squeeze. Any attempts to trade it are probably better left to day traders.

The S&P 500 at 1161 is not that far away from the 50% retracement (1158) of its October rally. Since investors like round numbers I'd probably focus on the 1150 level as potential support. If that fails then I'd look for a drop to 1120.

We are not adding any new trades tonight. Stocks may be due for a bounce but the short-term trend is clearly down. While the U.S. markets are closed tomorrow Europe is still open. With the daily headlines out of Europe there is no telling what could happen tomorrow. There is some speculation that we could hear a significant policy announcement out of Europe this weekend but I repeat, it's just rumor at this point.

From our family to yours, we wish you a wonderful Thanksgiving holiday. Newsletter coverage returns this weekend.

- James