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It's Beginning to Look A Lot Like...

It's beginning to look a lot like a conviction-less rally everywhere you trade...That is what could be in store for the markets as we head into the end of the year. There's a few key stocks I'm looking at to the short side, but in general, all of our indicators are moving upwards. Then again, critical market metrics like the transports are starting to look a bit weak and the PowerShares QQQ Trust (QQQQ) are starting to come to targets we spoke about in previous posts. So what's the overall verdict? I'm going to be looking for a low volume, steady rise to the top. Not anything earth shattering and definitely not 20-25 points, something more like 1250 in the S&P 500 makes sense.

And what about the mighty dollar? There was a good few weeks in October and November where the U.S. dollar was a good leading indicator of what the path of least resistance was for the market. The most telling trend is when the dollar was going lower and the stock market was going higher. What makes sense now is a slightly higher dollar along with the market as the euro edges lower. Watching for key correlations like this to come back into play can really help give you an edge.

Another sector that's important to watch is the precious metals. Gold has been bouncing withing it's ATR (average true range) and is coming up to some key levels. On a daily chart, we see that we've been consolidating near the 14 EMA (exponential moving average) and a continuation of indecision wouldn't be surprising except for the fact that we've got a squeeze forming. These expansions of volatility are key for traders that look to take advantage of these movements through options on an ETF like SPDR Gold Trust ETF (GLD). Silver does not have a squeeze setting up, but I expect it to be brought up with gold as it doesn't have any real resistance until the $30.00 level.

Thursday will be a day you'll want to be on your toes as we have several economic reports coming out, and don't be surprised to see institutional selling on any hints of weakness.

At this point in the game, it does make sense to have exposure on both sides of this market. As I was saying before, overall I'm a moderate bull here, but it makes sense to also have short protection here and I'm looking at putting about 20% of my capital towards it. One place the puts reside are with priceline.com (PCLN). This stock has been flirting with it's 14 EMA as well and being held below it thus far on a daily chart. If we start getting above this and then $410.00 it's going to be time for me to unload and reassess.

One stock that still shows no sign of stopping is Amazon.com (AMZN). Any pullbacks here are buying opportunities to complete the bull side of our discussed portfolio as I look for this stock to move on and test the $187.50 level.

Some may argue that the mental side of trading is just as important as the technical side but remember, you don't have to be in a trade just to know you're alive. Sometimes patience is a traders best friend and saving $20.00 is a lot like making it.

At the time of publication, John Carter was long AMZN calls and long PCLN puts.

John is a Commodity Trading Advisor with Razor Trading. McGraw Hill commissioned him to write a book entitled Mastering the Trade, which was released in January 2006. Carter has also been featured on ABC Money. He and Hubert Senters founded and run the Trade the Markets web site.

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Stock quotes in this article: AMZN, PCLN, GLD, QQQQ 

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