Back and Fill After Rally, but Bulls Still Have Edge

According to the Fed's Beige Book, "economic conditions have generally improved". Unfortunately for traders, the stock market's reaction was nearly as bland as the news. It is hard to determine whether the equity markets failure to move higher is bearish or failure to move lower is bullish. One thing is for sure, the major indices are stuck in a rut.

As expected, the Fed's take on the economy showed a struggling job market but they did point out a few diamonds in the rough. In the Boston region, firms were beginning to hire and reverse pay cuts and in St. Louis the service sector expanded. Nonetheless, just last week the Fed claimed that it could take as much as five or six years for the employment picture to be back to "normal".

All eyes are on Friday's employment report but this morning the market got a glimpse of what might be on the horizon. Payroll firm, ADP, released their predictions of the government numbers. They believe that the U.S. economy lost about 169k jobs in November. If they are right, the number will be a slight disappointment but based on the fact that it is an improvement from last month and the market has already been warned (thanks to ADP), such a reading might be seen as temporarily supportive for equities.

We are sticking to yesterdays forecast:

"based on our chart work a continuation of the short squeeze could put the December S&P near 1130 in the coming sessions. This equates to 1840 in the December NASDAQ futures and about 625 in the Russell. However, we will be bearish at these levels!"