S&P Posts Daily Reversal Top
Wednesday’s weaker than expected ADP Report for November helped contribute to today’s drop in demand for higher risk assets. This led to a stronger Dollar as traders sought safety in the U.S. currency while reducing exposure in riskier stocks and commodities.
Later in the afternoon, trader focus shifted to the Fed’s Beige Book. This report did not reveal anything new about the economy, and basically confirmed that the economy is on the road to recovery albeit a rough path. The report also backed the Fed’s decision to keep interest rates low for a prolonged period of time.
The December E-mini S&P finally broke through the November top at 1112.25, triggering stops all the way to 1115.50 but could not attract any buyers on the breakout and finished lower. The first clue that this rally was going to fail came from watching the Dollar. The Dollar remained firm when the S&P rallied. This divergence caused the buying in the stock market to dry up. The closing price reversal top which was formed today often leads to a 2 to 3 day break. A break through 1104.25 is likely to trigger an acceleration to the downside.
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