For a minute there, I thought that the market would just sail right through 3.14 Fibonacci arc. See the red line on this chart (click to enlarge):

I drew this arc by connecting the swing low from October to the swing high (green line on chart). Notice how the market reacted at the 161.8% arc (blue line and arrow on chart). I was looking for a reaction at the red line on Friday, but it did not arrive, though it appears that it will at the open Friday morning.

Note: Pi is not a Fibonacci number, but I like to include it when doing a Fibonacci analysis.

Selling Marshmallows While Rome Burns
Caterpillar CEO Jim Owens was on CNBC Tuesday morning preaching against the evils of protectionism. I’m sure Cat has done very well in our fabulous new global economy. Just imagine how many tractors Mexico had to buy in order to build all the infrastructure necessary to relocate the US auto industry down there.

Not-So-Docile Holiday Trading
The day before Thanksgiving last year, the market gapped down and then rallied the entire day. At 9:31am, SPY was at 84.14 and it closed at 89.04 – almost $5 higher. So, don’t think that this day can’t be eventful. Though last year the country was in the thrall of Obama Mania. This year it’s Gold Mania.

Here is a chart of the S&P 500 for the final 15-years (1980-1994) of America’s sordid, protectionist past. NAFTA went into effect on January 1, 1995. Click chart to enlarge:

The S&P 500 went up four-fold during that dark era. I shudder to think of how we selfish Americans hogged all of that economic growth to ourselves. Isn’t it time that we made a formal apology to the world? You know, like apologizing for slavery, or dropping H-bombs.

On this Thanksgiving Day, make sure to say a little prayer for all the great Republican, Democratic, and Libertarian advocates of “free trade” who are valiantly protecting us from suffering a relapse into the horrors of protectionism.

Here is the “Free Trade Era” chart of the S&P 500:

Isn’t that better? A nice egalitarian, sideways chart that proudly proclaims America’s economic sacrifice on behalf of the global economy. It’s a beautiful thing, is it not?

(Note: The second chart does run up nicely for the first five years. But the task of exporting millions of jobs doesn’t just happen overnight, right? A lot of infrastructure had to be built up in Mexico and Asia before our manufacturing base could be relocated. But we got it done in record time. The USA is can-do nation.)

People have been talking about the “confusing” price action, but all the market did was execute a rounding turn pattern. Or as I like to call it, a “slow rounding turn” which emphasizes how sneaky it is. The market shot right back up to where it began its fall: Thursday morning’s gap, and that completed the pattern. I believe it is significant that none of the major ETF’s were able to close above their Thursday gaps. DIA came the closest, but missed by a few cents. So, the gap is still resistance, although it has been weakened.

Today was also a good example of gap trading. If you had put a limit order to short up at the QQQQ’s Wednesday close, which is the top of the Thursday down-gap, you would have gotten filled at 44.35, and had an instant winner. The Q’s did blast right through Friday morning’s down-gap, however that one was within “echo gaping” distance. It was too close to fade reliably. The key is to find a fresh gap that is one monster day away, up or down. SPY and DIA punched through the tops of their gaps before falling back, and XLF could only reach the bottom of its gap, so there is, of course, variation.

The SPX could be in a bull-flag pattern now since it bounced just above a 50% retracement of the morning blast. However, breadth deteriorated more than it has during recent rallies, and the futures have been weak since the close. So, it just doesn’t feel like a bull flag. Perhaps the market wants to range between 1085 and 1111 for a while.