I’m still on vacation mode and was planning to let the holiday season/fiscal cliff whipsaw trading subside before sitting down to study the charts over the weekend but with the big gap up today, preceded by Monday’s big rally I figured that I’d share my thoughts.

First off, best not to read too much into anything that happened(s) this week or last.  Both are abbreviated trading weeks with most market participants on vacation.  Add to that all the fiscal cliff “noise” and you have all the making for a whipsaw market and greatly increased odds of false breakouts not to mention having your stops run.  With that being said, it’s hard to ignore the price action over the last two days so here are my thoughts, fwiw:

The QQQ has so far stopped cold at the 61.8% fibonacci retracement of the Sept 19 – Nov 16th drop, something that, although I did believe that we would turn down sooner, I has stated that it would not surprise me in the least if we hit that typical retracement level on this bounce.  The SPY, which as been stronger all along is so far finding resistance at the 78.6% retracement level.  Most importantly on the SPY/SPX, is the fact that it is re-testing, and has so far failed at it’s recent 12/18 & 12/19 prior reaction highs.   Therefore, any solid or sustained move above today’s highs on the NDX/QQQ & SPX/SPY will quickly start to diminish the longer-term bearish case.  SPY & QQQ daily charts below:

Today’s gap has also eliminated my primary scenario and put into play my previous alternative (now primary) scenario on QID.  Again, any significant additional upside in the market (downside in QID) will begin to diminish the chances of this bearish scenario playing out.  Previous & updated daily charts below: