The calendar is very light and there aren't many market moving events scheduled this week. Stocks have tested the downside intraday and they have rallied back before the close. This pattern has developed in the last few days. We are caught in a range and the market is searching for its next catalyst. The news is generally positive. Rumor has it that Greece is getting closer and closer to a deal. European banks have been tapping the ECB and they are catching a bid. Bond auctions have gone well and Spain is even considering a syndicated offering.

Last week, the market broke out above resistance when the jobs report came in much better than expected. PMI's in Europe and Asia were also above estimates. This is a very quiet news week and the momentum should allow stocks to inch higher. Domestic economic conditions have been outpacing the rest of the world. ISM manufacturing and ISM services came in better than expected last week and GDP rose 2.8% in the preliminary reading. The optimism is growing. Credit concerns in Europe have subsided. The ECB provided a massive liquidity injection and interest rates have declined.

Will the beginning of the “anticipated” correction come tomorrow?
The Nonfarm Payroll report is often a market mover and I expect to see much of the same tomorrow.
The market is wound tight and typically when that occurs we are witness to a large directional move.
I expect, regardless of how positive (or negative) the report is tomorrow, [...]

Yesterday, stocks started out on the plus side and gradually weakened throughout the day. The S&P 500 finished down 16 points and this morning, it is up by about the same amount in pre-open trading. As we head into the holiday, the volume will dry up. There isn't much news overnight, but a decent bond auction in Spain sparked a rally in Europe. These were very short-term maturities (three-month and six-month bills) and I don't view this as an indication of improving long-term demand. Standard & Poor's has still not released its credit ratings review of Europe.

Yesterday, stocks pulled back ahead of Italy's 10-year bond auction. Investors were concerned that the demand would be low. This morning we learned that the bid to cover was 1.2 and yields were over 7%. The dismal results were largely priced into the market and stocks opened a bit higher. As I've been mentioning, European banks will have little appetite for longer-term maturities. They fell into this trap three years ago when they borrowed money from the ECB and now they are sitting on huge losses. Yesterday, I also mentioned that the ECB would actively support Italy's bond auction.

I came across a great article on the one bad trade syndrome. Several months ago, Slopers (Tim Knight’s Band of Followers), were privy to a real-life blow-up in which a trader essentially risked all of his trading capital on essentially one trade(disregarded the importance of position-sizing). I want to make sure that I never make [...]

This morning, stocks were trading lower before the open. J.P. Morgan hit its bottom line, but revenues were soft. The stock declined on the news and the recent rally in financials leaves downside room. This is one of the strongest banks in the nation and it sets the tone for the entire sector. After an hour of trading, rumors started circulating that Standard & Poor's will release its European credit review. This is the news we've been waiting for. Rumor has it that 15 countries will be downgraded. France and Austria will be downgraded by one notch.

Last Friday, news leaked out that S&P was going to release its European credit review. The downgrades were in line with expectations and the market handled the news well. European markets were open yesterday and they traded slightly higher. The biggest concern was that France might get downgraded two notches and that Germany might also get downgraded. This did not transpire. France was only downgraded one notch and Germany was not even placed "on watch".

After a few down days, the market woke up. PMI's in Europe and Asia were decent and a Greek haircut agreement seems close. Even though the market is challenging resistance, it has not advanced in the last 10 days. The ECB's "bazooka" worked and confidence has temporarily been restored. Investors are less fearful of a financial crisis. Some analysts believe that the ECB's balance sheet will grow to €1.5 trillion in 2012 (biggest ever). Central banks around the world are backing the ECB and this is an "all in" strategy. If Europe fails, we all fail.

Last week, the market ran up to resistance on the first trading day of the year and it stalled. An excellent round of economic releases was not enough to force a breakout. Asset Managers are cautious and they are not chasing the market higher. Today, earnings season will kick off. Alcoa will announce after the close and I am expecting poor guidance. Half of their revenues are generated overseas and they will point to weakness in China. This has been one of the busiest preannouncement periods in years. S&P 500 growth forecasts have been cut in half for Q4.