Good morning traders,

The bullet point format is a lot easier for me to write.  Since you guys don’t seem to mind (or maybe even prefer?) it, I’ll continue with that format again.  Also, I am once again writing this the night before, so I will update and note on Twitter if anything changes.  I am not trading these last few days of the year so I apologize for being slightly more out of touch than usual.

• NYSE volume was on pace for much of yesterday’s session to be the lowest in 10 years.  At the close, a small surge in volume brought the level up to a more reasonable number for the season, but the fact remains — volume is extremely light so tread carefully if you are daytrading.
• There were a few standouts individual stocks yesterday.  AIG, of course, should be on everyone’s radar for a second day play.  Also watch CSCO, FTEK, CSCO, ENI, and CALM.  As I said yesterday, you will most likely have your best results today focusing on really in-play names and avoiding sector and/or broad market plays for the most part.  (The SMB Radar is your best friend when it comes to finding these stocks early in the day.)
• Watch a handful of economic numbers today:  8:55 (EST) Redbook, 9:00 Case-Shiller, and 10:00 Consumer Confidence.  Of those, the CC number is the one to watch most closely.  Baseline expectation should be for all of these to be a non-event, but a surprise in this environment could be…dramatic.  Especially watch and plan for slippage in individual stocks where you might not normally expect it.  Factor this is as one form of increased risk today.
• Even the currency markets have taken a breather these past few days.  We see several interesting setups, but, so far, no significant movement on the daily timeframe.
• I see nothing clear on the metals right now, and it is probably best to avoid metals and mining stocks until that changes.  With this kind of consolidation, it is pretty likely that the first break out of this range will be a fakeout, so it probably makes sense to avoid paying a breakout or shorting a breakdown.  Just be aware that volatility is contracting, but that will not go on forever… keep an eye on these every day and watch for them to wake up.
• Crude Oil is worth keeping an eye on as it presses through significant resistance.  Also, Natural Gas futures may be poised to trade to new lows.  Either or both of these moves could put XLE and OIH stocks in play, so watch both of these commodities for movement over the next two weeks.  An important ETF note: swing traders are advised to understand the intricacies and potential issues behind UNG if they choose to trade Natural through that instrument.  Caveat emptor.

Lastly, here is a note from Andrew Barber, the Senior Strategist at Waverly Advisors, on the China rate hike yesterday:

Macro: The PBOC decision to adjust one year deposit and lending rates upwards by 25 basis points over a quiet holiday market stretch neither surprised us nor changed our view. Our long term readers know that our comments on China have been monotonous for the past several quarters. For the benefit of newer readers, our expectations on policy in Beijing as we head into the new year are as follows:

• We continue to anticipate that there will be more tightening moves over the coming months. Although we see more rate increases on the way in response to price pressure, we also expect that the PBOC will maintain its bias towards leading with bank credit tightening.
• Consumer price fixing and direct intervention in specific commodity markets seem likely to remain a preferred mechanism for dealing with short-term inflation and imbalance.
• We do not expect dramatic Yuan valuation adjustments in the intermediate term. Beijing appears anxious to retain the status quo as we head into the new year, currying political favor abroad through strategic debt purchases and development deals as they continue to seek to shield primary export industries from rebalancing shocks. This approach will likely intensify the politicization of trade policy debate in
  Washington.

What we are NOT expecting in the intermediate-term is any change reflecting a significant shift in policy by Beijing and our view will be subject to immediate revision should any such signal emerge.

Note that short term Shibor rates have spike dramatically higher in anticipation of and response to this move (see chart). Margin rates on the Shanghai exchange are pegged to Shibor (typically +2%), so, in the very near term, this squeeze on “hot money” puts pressure on equities trading on the domestic exchanges, making short-term volatility more likely.