Middle of a Trading Range

The S&P is in the middle of a trading range from 850 to 1000 and right now there's more room to the downside than the upside. Accordingly, I'm looking at things a bit more negatively right now due to the run-up we've had and the lack of a catalyst to propell stocks higher. If you look back at days where we've rallied and then had a nice red bar turnaround at resistance points, the following days have not been pretty. Back in September this was the case, as it was twice in October. I'd look for this mornings shallow decline to deepen a bit as the day goes on.

Bad economic news continues to come out. Upscale/Mid-Tier Retailers such as Macy's and Target continue to get hit by consumers trading down to Wal-Mart/Cost-Co and pulling back altogether. But a lot of this has already been discounted (as shown by the gains in many retailers today) making the environment that much more difficult to work through. GDP was negative in Q3, but the market stayed decently strong in the face of that as well.

The global slowdown is in full-effect though and you have to think it'll be hard to continually shrug off these nagging problems. The BOE cut rates 1.5 percentage points this morning. The ECB and Fed are chopping away too. But as it's been shown over the past year, cutting rates does not necessarily lead to cheaper and more available credit. So in the end, you have a slightly more positive near term outlook just because of the indiscriminate negativity and the momentary warming of frigid credit conditions, but also a backdrop that's failing to improve and that is incredibly persistent.

I'm not sure who is brave enough to go out there and start buying. Hedge funds that have gotten burned this year and they are too busy selling to raise money for redemptions. There just doesn't seem like there is any room to rally as investors have adjusted their time horizons and economic data does not improve. One things is for sure: we're not going straight up. It'll take time to work through the problems. New lows are not out of the question, but we're likely in a range for a bit.