Well, that was interesting. Normally this week is mildly bullish, so today's decidedly bearish action was a bit of a curve ball. Or, maybe it wasn't. Remember this chart from Thursday of last week? When we looked at it then we mentioned we saw a budding recovery effort from bonds and gold, which would come at the expense of stocks. In the meantime that's been fleshed out a little more... just as we predicted would be the case. We're still not past the proverbial tipping point, but boy are we getting close. And, you don't need me to point out there's a huge performance gap between the winner and the two losers that's aching to be filled. The clock started, so to speak, in the middle of the year. It didn't take very long for these asset classes to really diverge from one another. Now it's time to reverse course. We know there's not necessarily a great fundamental argument for stocks to fall and bonds/commodities to rise here (other than to point out that stock valuations have gotten downright uncomfortable, and the prospect of rising interest rates should pressure bonds lower rather than higher). But, that's not really a reason we can expect to the near-term reversal s suggested above. The great Benjamin Graham said it best: "In the short run, the market is a voting machine but in the long run, it is a weighing machine." Folks, the brewing weakness from stocks and the brewing strength from gold and bonds is a short-term trend, mostly driven by sentiment. It doesn't have a lot to do with the market's true, underlying fundamentals. That's not a bad thing though. If these budding trends continue to take shape, it will give us some buying and selling opportunities within the context and confines of the actual long-term trends. And yes, to the extent it matters, we've got a sneaking suspicion the developing trends plotted on the chart above are going to go somewhere in the near-term. We'll be using any sizeable pullback from stocks as a long-term buying opportunity. We don't do bonds, but even if we did, we're not so sure we'd be long-term buyers. As for gold, however, we do like gold for the long haul here. But, that's mostly rooted in the likelihood that the U.S. dollar is overbought and ripe for a pullback. Normally interest rates and the U.S. dollar would rise in tandem, but we've got a feeling the market's interest rates are already about as high as they need to be to price in 2017's projected rate hikes. Meanwhile, we think the U.S. dollar has already overshot where it meant to go in response to the prospect of rising interest rates. A lot of people are calling for the greenback to pull back here, in a pretty big way... especially now that the U.S. Dollar Index seems to be bumping into a ceiling at 103.6. We agree with that premise (though we'd be the first to admit we've been banging that drum for a while now, only to watch the U.S. Dollar Index keep rising). So what will it take to push the stock market over the edge? Glad you asked. Just a quick caution to take everything we're about to discuss with a grain of salt. This is usually a bullish time of year, but it's also rather goofy time of year, with many traders on vacation and many other traders looking to do some tax-mindful trading. On the other hand, regardless of what's happening under the hood, where the market starts out next week when "normal" trading resumes will be where it leaves off this week. In other words, what happens this week matters, and thanks to today's bearish action, the market may well end the week in a bit of technical (bearish) trouble. Take a look at the S&P 500's daily chart below. Today's low was pretty much in line with the low of 2248 from three weeks ago. It was also more or less aligned with the 20-day moving average line (blue), which frequently serves as a support and resistance level. And, as much as we'd like to dismiss today's surprising setback as just a fluke prodded by circumstances, the VIX popped quite a bit today too. It's interesting simply because when volume is modest and traders' thoughts are elsewhere, we don't usually see much action from the VIX. To see the VIX make a rather firm advance in the middle of this week, of all weeks, suggests there's actually a lot of defensiveness being put in place -- using options -- at this time. Traders at least have enough fear in a pullback to position against it. Such trades aren't free. If some traders are thinking and acting defensively, might they act that way sooner than later? A move below 2248 could be the proverbial straw that breaks the camel's back. On the other hand, even a break under 2248 could still be halted by the support developing around 2193. We're actually hoping for a break under that floor too, simply to get it overwith. With all of that being said... We've discussed it before, but it merits a little more attention now - this week and the first couple of days for the coming week are usually modestly bullish. To the extent the historical norm matters, market weakness shouldn't start until Thursday, January 5th. That nagging detail calls into question how much follow-through is even immediately possible from today's pullback. If the bears follow through on the move later this week, the usual year-end and year-beginning bullish tendency gets thrown right out the window, making any "January effect" clue basically meaningless for 2017. We're not complaining. Heck, we'd rather the market obliterate its tendencies if it's not going to adhere to them with near perfection. We're just saying (as we did above) things are odd right now, and whatever happens this week is how/where the market will have to start the new year. If it starts out looking like it's in short-term trouble, traders may act accordingly. We'll have to see how it all pans out. The good news is, it could be more than clear enough within the next two trading days. Finally, we'll close today's newsletter out with a look at the December consumer confidence score from the Conference Board. The data actually came out yesterday. The reading of 113.7 was the highest reading since mid-2001, which bodes well even if it's a little but overly-optimistic. Take a look. If consumers are feeling good, then they're feeling pretty good as investors too. That means there's a bullish undertow, which in turn means any pullbacks are quelled pretty quickly. That's good and bad. It's good for the obvious reasons, but it's bad in the sense that it staves off any really good, hardy corrective moves that would actually serve as compelling entry points for investors. We just wanted you to see the visualization, because the most recent reading is such an amazing score. Talk to you tomorrow.