Good morning traders,

I am still on semi-vacation (and not in the city for the big blizzard!) but wanted to share a few thoughts with you this morning. I’m writing this again at 2AM… if something changes before the open I’ll update.

• Key thing to remember is that we are still in post holiday mode. Don’t expect much followthrough… in general these next few days might be a time to cut your risk and size if you’re not up money by 11:00 AM or so.
• These thin markets are a double edge sword, because individual names can trend very well. There is often a lack of liquidity on the other side that will cause stocks to trend farther and more cleanly than you would expect. However, you won’t necessarily see the same cues and structures that you would in a “normal” trend, so these are difficult to trade.
• No real macro numbers out today. China did raise rates overnight, but this should have come as a surprise to no one doing even a modicum of macro work. We expect that this is the first in a series of China rate hikes, but also expect that this is nearly fully priced into those markets. In other words, a non-event.  [UPDATE:  An hour after writing this major Chinese indexes are down about 3 standard deviations (-2.3% to 3.9%) so maybe this was not a non-event as I said.]
• No clarity at all in currencies. I continue to have a “gut feel” that the US Dollar is due for a downturn (and we hold a short in US Dollar Index futures in the Waverly Advisors portfolio), but we really do not yet see that confirmed in the price charts. If you only trade equities, I still might keep a chart of UUP or FXE up intraday, as a significant move in the currency will cause a domino effect, first through commodities and metals and then into equities.
• I would not tend to focus on sector plays today, but be aware that Financials are still precarious, and Basic Materials and Energy could lead to the upside if the market is strong. If you must trade today, you probably will have best success in really in-play individual names rather than trying to play market or sector stocks.
• If you have had a good month, don’t screw it up today.  If you haven’t, you probably are not going to make your month in these next few days… just be smart in these potentially treacherous markets going into the end of the year.
• Lastly, I am reading EVERYWHERE that a massive correction is coming in equities.  Ranging from technicians at major institutions, to blog posts featuring incorrect data… it seems like a correction is now consensus.  As a short-term trader, I have always found it very counterproductive to try to predict too many steps ahead. Don’t try to guess, and above all, avoid getting caught up in too much speculation and negativity about the future.  If there is a turn, we will see it in the price action and we will be there, but I just don’t see the justification for all of the concern at this time.