This is how I view the odds for a market move lower.

PRE-OPEN MARKET COMMENTS FRIDAY – I don’t typically take a stance into a binary news event, but in this case, the evidence is strong in one direction.

First of all, I am not talking “my book”. Traders who have a position on will often cite reasons that justify holding that position. I just initiated the short position. I’m short because the odds tell me to take a position. Secondly, I don’t pick market tops. There has been technical confirmation that the selling pressure has been present for months and it has been building in the last few weeks.

Fundamental

I’m going to keep this light since I primarily trade based on technicals. Global economic conditions are deteriorating. China has been the cornerstone for growth for three decades and I sense a credit crisis could be brewing there. At very least, they will suffer severe economic contraction. Foreign investment has been leaving the country for many years. Prices are plunging (deflation) and that is a very slippery slope. The PBOC has slashed rates and long-term yields are below Japan’s which is incredible. That stimulus sparked a small “pop” in their market last fall, but those gains have been given back. In short, it’s not working. I don’t trust China’s releases. What every they report, conditions are much worse and I feel they are already in a recession. Where is global growth going to come from now that the growth engine is in decline? Not from Japan or South Korea. Certainly not from Europe. GDP in the EU has been growing at .5% for the last couple of years.

The US has been holding strong… or so it seems. On a real basis (less inflation), GDP has been growing at a 1% rate. We printed $8 trillion dollars after Covid-19 and that stimulus artificially propped us up and that money is running out. Consumer credit defaults are rising (3%). It’s not the rate that is alarming, but the trend. New home inventories are at record levels not seen since 2007 and builders are slashing prices to unload supply. The demand for construction workers will decline. New car inventories are close to record highs and the same goes for auto workers. The Fed is dovish and interest rates continue to climb. How can that be? Obviously, the market feels that the Fed is not going to tighten. The average new car loan is $800/month and people can’t afford them.

There is also some uncertainty related to Trump taking office. I’M NOT MAKING A STATEMENT ABOUT HIS POLICIES OR COMPETENCE. Republicans control the White House, the Senate and the House. They will have the power to get things done and dramatic changes have been promised. I’m not making a statement that they will be good or bad, just that they present uncertainty and the market does not like uncertainty. I’ve traded through a Trump presidency. The market went higher and the economy grew, but it was volatile times.

Technical

This is really all I need to focus on and technical analysis keeps thing so light and easy. You don’t have to worry about why price is behaving in a certain way, only that it is. This is how we figure out what the smart money is doing.

The market rally in the last few months has been crappy. Mixed tiny bodied candles on incredibly light volume. We have been seeing more dips in the last few months. Every single move higher has been challenged (retracement). When the market finds support, it grinds higher and it makes marginal new highs. That is why we exited all of our bullish swing trades early in December and I posted that in Reddit.

Since the FOMC drop, the market has not recovered. It is spending more and more time below the 50-day MA. Previously it flew off of that level and it was a sign that buyers were aggressive. Now they are not so interested and sellers are keeping a lid on the action. I believe the next move is down.

I need to post this before the number and we are minutes away from the Jobs Report so I am going to post this now and add more comments.