Ahead of the open, (29-12)

A quiet overnight session, a steady premarket with ES up a few points and you’d think we’d be in for another treacherously boring, tight range trading day.  But, oh no, Santa seemed to have 'onlined' the Bears one more gift as the market tripped out of the gate and continued to roll to a 20 SP handle loss from (ES high to low).  Maybe, this Bear gift wasn’t from Santa, the melt down had no explanations as to whom/ what was responsible.  The only excuse to account for the downdraft was the EURO falling out of bed (~1%), but even Euro needs a ‘catalyst” firstly and there wasn’t one.  The Italian short term bill auction was a mild success with the anticipated longer term bonds sale on Thursday to gauge foreign buying, so this wasn’t the culprit.  Nobody at the end knows what caused the EURO plunge at the U.S market open, not even the plotters at Zerohedge, it seems.  One excuse, the stashed EURO's at ECB climbing to EU452 billion is really old news considering market already knew EU347 billion (new record) was parked post LTRO last Thursday night.

Preference here to trade –off is when you have a lot of excuses to account for a decent size downside day like recently, ... (A slew of wire bits were floating around trading desks explaining the weakness, but in this view, just excuses. Recall what has been said on these pages for a long time, if the market can’t pinpoint one real deserving catalyst on a downside day, more often than not, majority of the losses are reversed the next trading day. (MARKET RALLIES 3% day after),  not one where you can’t even generate 1 or 2 decent excuses.

All in, maybe it was just the thin liquidity at work where one oversized buy or sell can lead the exaggerated moves, especially true in FX markets leading to a domino effect in the equity markets.

Or maybe, it was the just the logjam of resistance points in the 1260’s and the faltering underlying currents catching up to the broad market covered here last few trading days.  R2K underperformed the SP once again this time by almost a full 100bp to the downside and the Euro’zone sensitive, Financials lagged with another 1.5%(BKX) drop.  The inability for the small caps to follow through on previous days slight breakout is a disappointment.