Next week we’ll get the last big news release of the year.

PRE-OPEN MARKET COMMENTS FRIDAY – Since the start of the month the market has been trapped in a tight trading range and the volume has been light. The 20-day Average True Range (ATR) has dropped by 50% and option implied volatilities (VXX) are near their lows of the year. The upward momentum has stalled and that tells me that we are not likely to move much before the FOMC Statement next week.

The Fed is expected to cut rates by 25 basis points. When interest rates are lowered, bond prices go up. Really, then why is are US 10-year Treasury bonds dropping? Good question! Perhaps inflation is starting to move higher. The CPI came in at .3% and that is above the Fed’s target. The PPI showed a .4% increase M/M and hourly wages increase .4% in the last jobs report. The rise in interest rates could also be a demand/supply issue. The US had $7T in debt that matured this year and they are still refinancing it. Regardless of the reasons, bonds are declining and that is contrary to the dovish path outlined by the Fed. When something doesn’t make sense, you tread cautiously.

Yesterday, initial jobless claims came in at 242K. That was a spike of more than 20K from the average. We’ve seen major adjustments to the jobs number this year (-800K) and I doubt that employment is as robust as we are lead to believe. The unemployment rate inched higher last month and the labor participation rate has been declining. When someone is unemployed for more than six months, the government conveniently removes them from the labor force on the notion that they are no longer looking for work. When the number comes out, it looks great on the surface, but pay close attention to the downward revisions in prior months. Canada (one of our largest trading partners) reported a 6.9% unemployment rate.

One of the Fed’s mandates is to preserve “full employment”. Even with inflation ticking higher and staying above their target range, they are easing. When they cut rates in September, they did not go 25 basis points, they went 50 basis points. That was an aggressive move.

My job is to look for “tells” and at best, I’m neutral heading into 2025. We have bullish year-end seasonality and a light news cycle working in favor of the up trend. Even with a small bid, prices can move higher and we know that Asset Managers want to mark portfolios up into year end. Can the market go higher from here? Absolutely. We could even see a buying climax that takes us to $620. I’m doubtful of that for two reasons. 1. We would need an incredible catalyst and we don’t have one. If it was present we would be seeing nice long green candles and strong volume. 2. We would need lots of shorts. No one has been shorting with the market sitting at an all-time high. When those shorts cover they would fuel that buying climax. If the market is able to advance from here I believe it will be gradual and challenged (a sign of resistance).

Be cautious. This is a time to reduce risk. I sense that a dip is coming and it could turn into a drop. I won’t be able to gauge the selling pressure until I see it… so I’ll wait for it. That’s what you should do too.

Swing traders should be in cash and day traders should error on the side of not trading. Be very selective and wait for your windows to set up. I don’t know if they will be on the long or short side and either is possible.

Support is the low from yesterday and resistance is the all-time high.