Call of Fame
I am pleased to report that another one of my calls has been enshrined in the Call of Fame by a unanimous vote of the induction committee which consists of three voting members (me, myself, and I). However, even though SPY popped out of its falling wedge pattern at noon on Friday, the bulls weren’t able to build much momentum.

Bulls Clubbed Like Baby Seals
For three days in a row, the QQQQ has gapped down, and retraced weakly. Dip-buying bulls who stepped in to buy the down-gaps had to be satisfied with meager profits taken quickly, or get clubbed like a baby seal. The psychological impact of this pattern is that if the Q’s drop again on Monday morning, the bulls will be less likely to stick their fingers into the light socket again. And if the dip-buyers step aside, then the market would whoosh down searching for another stratum of buyers. So, it is critical for the bulls to break the pattern.

Today’s Setup
Bullish Factors:
1) Cheerful holiday trading atmosphere.

Bearish Factors:
1) Breadth is no longer deeply oversold.
2) The VIX is still very low indicating complacency
3) As 2thfixr pointed out, there is a sinister broadening pattern on the NASDAQ chart.
4) Bears have the momentum.

Not-So-Fast, or Swift, Money
On Friday’s episode of Fast Money, the genius traders began to talk about parabolic gold. But you read it here first, three days prior. The pony-tail guy even mentioned Daneric’s 1300 target, and credited it to the dopey Fast Money weather man, “Glide Path”. Weasels. How long will it be before they start talking about K’s Ted Spread? Speaking of which, the traders also said that they “didn’t get” the negative yield on T-bills. What’s not to get? The big money is afraid of something. If you want to take the attitude: “I don’t get why the big money is fearful, but I’m not” go right ahead. And I wish you luck.

(Note: AEP discusses a $6300 gold target here.)

Pony-Tail also raved about “Mutual Fund Monday” where, allegedly, money pours into mutual funds over the weekend and the fund managers then buy stocks with it on Monday. However, if you actually look at the data, you will see that funds which invest in US stocks have been suffering redemptions for 13 weeks in a row! Data here.

You Throw Like a Girl Compared to Her
On Friday, I flipped the channel at the exact moment that a hot chick in a bikini was throwing a perfect 40-yard touchdown pass. My jaw hit the floor. What the hell was that? It was Anonka Dixon of the local franchise of the Lingerie Football League, the Miami Caliente. The players and coaches take their football very seriously, but management does not. So, I couldn’t find a professionally done highlights reel. But at 1:04 into this video, you can see Dixon throw a touchdown. Playing on AstroTurf is bad enough, but doing it with no clothes on has to take a toll. By the end of the season, these girls will be walking scabs. I hope that they are being paid well.

This comment from Bill Gross got a lot of play last week:

“Raise interest rates with 15 million jobless and 25 million part-time working Americans? All because gold is above $1,100? You must be joking or smoking – something. We will need another 12 months of 4-5% nominal GDP growth before Bernanke and company dare lift their heads out of the 0% foxhole – mini-bubbles or not.”

The Fed has had rates at zero for quite a while now, and how many jobs have been created? Zero. How many jobs have come home from Asia, Mexico, and India? Zero. How many jobs will come home? Zero.

There’s Bernanke, with his precious 0% interest rate, patiently watching General Motors to see if they will close plants in Mexico and China and bring them back to the USA. He’s certain that if he just holds it at 0% for long enough that IBM will rescind its “No Americans” hiring policy, and bring programmer jobs back from India.

Good luck with that.

Bernanke hasn’t figured out that he isn’t even a player in the jobs game now. It’s all about trade policy. The President will be holding a “jobs summit” in December, and what are the odds that something like “Rescind NAFTA” will be on the agenda? Zero.

Mr. Gross has put his stamp of approval onto the gold bubble, so it looks like it is unanimous now among the powers that be. The meme is: “We must ‘suffer’ a gold bubble until jobs are created.” Don’t bet on the gold bubble popping while the powers that be are chanting that mantra. And since our national economic policy is to export as many jobs as possible in the name of “free trade”, don’t expect that mantra to end any time soon.

Mexico’s economy is growing at annual rate of 12%. How did they accomplish that? According to this Wall Street Journal story:

“The U.S. cash-for-clunkers program fueled demand for cars and helped Mexico’s export-oriented auto industry in the third quarter…”

Wasn’t it a great idea to move 1,000 factories and 1,000,000 jobs to Mexico via NAFTA? Wasn’t it a great idea for the US taxpayers to bailout General Motors so that they could put Mexicans back to work?

“Since the bailout, the rate of factory and warehouse closings has actually accelerated as the company has used federal dollars to pay to padlock facilities in the U.S. and to open plants in Mexico and China.”

For a list of GM plants in Mexico, go to www.gm.com and type “Mexico” into the search box. You won’t find anything. They don’t want you to know: “U.S. automakers expand in Mexico, but do it very quietly.”

Breadth was pretty well smashed on Thursday, so it will very likely improve today. The bulls may get further retracement upward, but if the market consolidates sideways as breadth mean-reverts, it will be a win for the bears.

A bear-flag pattern may be forming on the SPX. Here is a 60-minute (click to enlarge):

The blue line was a high-volume plunge. The purple lines outline a sharp retracement on lighter volume. The red line is the same height as the blue line and is placed at the top of the flag to get a pattern projection. If the pattern plays out, the bottom of the red line is the target. Notice that it’s close to the level of the still-unfilled gap left from the open on November 9th.

On the 15-minute chart below, we see that the retracement, if it is indeed complete, was weak; only being able to muster a bounce to the 38.2% Fibonacci retracement level (Point B). Another bearish indicator is that the opening gap was not filled (Point A):

The next chart shows Fibonacci extensions, and uses the same three points as were used in the flag on the first chart:

What I find interesting is that the 127% extension matches exactly with the close on November 6th, which is where the gap discussed above opened. (The blue horizontal line highlights the connection between the gap and the 127% extension).

That’s the market’s way of telling you: “I’m thinking about filling that gap.” Gaps are targets to which the market gravitates. A 127% extension is feasible because, as we saw on the second chart, the retracement was weak, and the market left behind a gap overhead. Also, all the major ETF’s left gaps behind, so it was a rather emphatic, bearish statement.

Gaps above are resistance, and gaps below are support. So, if you are bullish, you want to go long as prices approach the downside gap.

Of course, there is no guarantee that the market will drop that far, or at all. An alternative scenario would be a 61.8% extension which holds the November 12th low at 1085. Or the market could retrace upward some more on Friday, which would cause all the downside targets to be raised.

One thing to watch for on Friday is for the market to fall in a wedge pattern. That often gives a clue as to how far the extension will go, and is a typical way for a correction to complete.

And since this is a bull market, prices can simply keep going up from today’s close. If this were a bear market, that would be very unlikely, but in a bull market, such “pattern failure” happens all the time.