Before we mention anything else, we should say that the December options expiration is Friday December 15th. This is normally a big event due to the so-called quadruple witching when futures expire along with options. The volume can be extraordinary given there are big positions to unwind. This expiration could be somewhat responsible for the burst of energy in the market early Thursday when the Dow popped about 75 points in the first half hour of trading. The broader market got the same push as the Dow.
The other item about Friday is that it is the day we see the CPI numbers, you remember, the important “core” rate that the Fed is watching. For the most part the market doesn’t seem to care too much about inflation because the Fed has been harping on it for a few months now. The Fed keeps saying the “core” rate is over the amount that they would like to see and still Nothing on the interest rate front. Yes, we have mentioned it many times before and tonight is no different—the Fed can Not raise rates, Period. The expectation for the CPI is a modest increase of 0.2% for both the CPI and the “core” CPI so we will have to wait to see what they really are.
In the news, after the close, DELL announced that it is delaying its 3rd quarter filing due to its ongoing probe by the SEC on its accounting practices. We seem to remember that there was a flurry of activity back in late November when DELL said that its preliminary numbers were going to be above forecasts by 25%. That news popped the stock 10% helping the NASDAQ indexes to enjoy a new 52 week high which was Not bested by today’s ramp up. So, after rising 80 cents during the day, DELL sold off to the tune of 24 cents after that news. Well, that makes sense doesn’t it? Maybe not.
In the past few weeks we have seen the markets back off the late November highs and trade in a narrow band. We have mentioned that this looks to be a natural pattern and begs for another thrust higher in prices. The main goal here is to complete the pattern that the market wants to finish.
With today’s rally in the Dow, pushing it up to a new record high, we are now in a position to complete the pattern. We recommend extreme caution in this last spike upward because at any moment the spike could be over. In fact, today’s spike to a new high is all that is required for a top to be recorded. We don’t really think that is highly likely but it is possible. With Friday’s options/futures expiration and the CPI news, there is a significant possibility that we will see the final top this week in the Dow. We think it more likely that we will see it come in the first week or so of the new year.
There are many reasons to believe that the top will come when the most people believe that the market can only go up. Looking at today’s VIX, recording a multiyear low, the complacency is running high. Caution is the name of the game. Confidence in the market is at a very high level and these are the times that the market can slice and dice its participants. Friday could be a very interesting day.
Dow Industrials: 12,416.76 +99.26 (new record high)
VIX: 9.97 (hit a multi-year low on Thursday at 9.64)
QQQQ: 44.37 (did Not break the November high)
BEGBX: 14.14 (dollar making a comeback)