Yesterday’s forecasts showed no great prescience, since the short-squeeze that we’d expected to kick off the day was nowhere in evidence. Instead, the stock market opened soft and spent the rest of the day navel-gazing. What made the lack of follow-through especially surprising was that Asian stocks had risen sharply Wednesday night following the U.S. stock market’s lead.  We  might have expected this to spook shorts in the pre-dawn hours, but instead the E-mini S&Ps showed preternatural calm, frozen into an inscrutable four-point loss at the opening bell that suggested that neither bulls nor bears were eager to place any bets.

(Click on chart to enlarge)

We hesitate to predict anything dramatic for Friday but will mention nonetheless that yesterday’s humdrum action left us with a mildly bearish bias. That’s because the Indoos have now spent two days dithering over whether to take on the November 14 peak (see chart above). That’s one of several prior highs looming on the daily chart, and it is not an especially imposing one. As such, the hesitation hints of a weakening trend, notwithstanding the breathtaking force that set stocks so violently in motion three days ago.  By our runes, if the rally had any real guts, we should have expected to see it knock off the November 14 high, if only by a few points, before taking any kind of breather.

Dollar Surprise

Another surprise is that the dollar hasn’t gotten pummeled by the same whiff of Fed easing that caused stocks to go bonkers. While this tends to reinforce the bullish call we made on the dollar when it was hitting bottom last week, it’s too early to say for sure, since the Dollar Index has generated only one bullish impulse leg on the hourly chart since the low.  Even so, the fact that the dollar has held its own in the last couple of days should be read as a sign of incipient strength. This was somewhat corroborated by the weak showing in December Gold, which closed yesterday beneath a Hidden Pivot support at 800.00 that we’d flagged as a dangerous threshold. The analysis spelled out what is likely to happen if the futures end the week below 800.00, so today’s action could prove crucial to the near-term outlook.