Bounce into CPI/FOMC meeting likely stalls and reverses course

This week’s weakness largely followed suit to the various cycle composites I’ve been discussing that warn of a selloff into 12/21-12/23 before much relief into end of year.   Recent performance has been overwhelmingly defensive in nature, while Treasury yields have shown initial evidence of bottoming out.  As I’ll show within this report, the US Dollar is also nearing important support, and both DXY and TNX should begin to exert some upward influence into mid-to-late December which could prove to be a headwind for risk assets.   Overall, technically, this week’s pullback held where it needed to initially, but the bounce likely will not push up above 4100 into/after FOMC.  The base case scenario suggests a peaking out and decline back under 3900 which would result in US Equity weakness into December expiration.  While I remain open to any outcome, the odds suggest that 4050 contains any bounce into Tuesday/Wednesday before the start of a breakdown to challenge and violate 3900.  Bottom line, bounces into next week look sellable while Defensive sectors should be overweighted for the next two weeks.

US Still underperforming after break of 2-year uptrend

The recent 10-15% bounce from October lows in US Stocks might seem impressive to most market participants who are expecting continuing downward earnings revisions.  However, the rally has proven to be far stronger abroad, and countries like Europe and Asia, not to mention Latin America have witnessed far more robust movement off the lows with arguably weaker economic conditions.

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