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So with Friday's expected reflex rally now out of the way, we can now turn our attention to next week as to what's setting up to be a disappointing one for the bulls unless they can come in early and generate solid plurality ratios on the buy side to thwart any further attempt by the sellers to paw prices lower. With this week's BETS coming in weaker with a -55, and the lack of vigor in the small caps on Friday's rebound, the rest of the month of December is likely to be a poor one to finish off the rest of the year. Because of this, let's continue to maintain a bearish bias towards equities for next week...

It indeed turned out to be a rough week for the markets as the energy sector (-6.55%) and financial (-5.37%) sector led the broader market indices lower by an average of 4.05%, week over week, with the S&P 600 Small Cap Index taking the biggest hit with a loss of 4.89% (the Russell 2000 was down 5.05%), while both the S&P 400 Mid Cap Index and the New York Composite Index were not that far behind the pace with declines of 4.15%.

Looking over our weekly array of breadth charts shows that selling was as widespread as we anticipated it might be last week with several of the cumulative money flow lines now below their reaction lows seen last month. This then suggests that we currently have enough momentum selling in place to where the price lows made in mid November will also be broken (if they haven't been already), and that a challenge of the late August/late September price lows has increased from being possible to probable. As was mentioned last week, it will be very important that the internals hold above these same August reaction lows with any price challenge that we might see as its importance to the longer term uptrend in prices will be critical to its continuation.

On a more positive note, both the Investment Grade Bonds and NYSE Bond CEF advance/decline lines held up nicely this past week as money sought the relative safety of debt issues, while the Precious Metals and XAU advance/decline lines continued to out perform in relation to other broader market issues. We do note, however, that it wasn't exactly an easy exercise for the buyers in not getting caught up this past week's down draft as several of the breadth and volume McClellan Summation Index's that we review in the chat room are currently moving from positive to negative territory. This movement from above the zero line to below the zero line opens a near term window for a broad based "crash like" event to take place in this time period where very little would be able to escape. So we'll have to wait to see how this all settles next weekend once this internal dynamic whirlpool, which also includes the FED Statement and quarterly OPEX, has finally been digested as to what it may mean moving forward.

So with the BETS moving to its lowest point since March 6th, 2009 with a reading of -75, we continue to be in a full defensive posture toward equities for what's looking to be the beginning of January as long as the August internal lows are not taken out. With equity market liquidity still showing a high degree of contraction, and the CRB (commodities) Index at levels not seen since the United States went off the gold standard in 1971, it will be very important to know what kind of monetary policy the Federal Reserve has in mind moving forward in order to attempt to hold the line of future economic wealth. Tightening too much might be too much of a choke hold for the market to bare, while re-opening the spigot full blast might only further delay the inevitable of a major economic calamity.

If any event, it should be an interesting, if not historic, week coming stay tuned.

Have a great trading week!

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