I’ve been watching the dollar index. It has been behaving exactly like I would expect it to. Money has been flowing into UUP, the dollar bullish ETF, at an amazing rate. Gold has had a pullback. But the stock market has displayed unexpected resiliency. We seem to be a bit stuck in a channel between 1080 and 1122, which might not normally be considered bullish, but it isn’t where I’d expect to be given the rally in the dollar and the pullback in gold. I would have expected a break down to about 1075 in the S&P (clearly outside of the channel), followed by more pain. Relative to those expectations, the bullish case is made: this is more robust than I expected. Could we break the channel one more time to the upside? I certainly can’t answer that and am still positioned for either a meltup or meltdown, but not for this channel to continue.

Given the amount of money pouring into UUP, I would expect this to end badly for the dollar. But ending badly for the dollar before things turn ugly in the stock market isn’t a scenario I would expect. I’m confused as to how such events could transpire, and confusion is a good excuse to stop trading. Since it coincides with the holidays, I’m inclined to boogie. Fortunately, a huge swing in currency should make the current channel less stable, so I don’t really have to figure out the mechanism. Still, CYA.

I expect a weekly unemployment report to come in after Christmas with an NSA number of first claims at about 800k. Lower than this and I overestimated Christmas seasonal hiring. Anything above 900k, and I start considering a bunker (again?!). Anything inside that range, and I have to look elsewhere for indicators. This, too, would support the argument that things are a bit robust. Fortunately, the monthly report won’t be too far behind. Seeing where the jobs are appearing/disappearing will shape my opinions on the strength of the recovery. The delta between December and January will be the most telling.

Nobody really likes being wrong, even a bear. But things are always better when a bear is wrong. While there are certainly more problems ahead (California, pensions, Option ARMs, more bank failures, persistent unemployment, European banks, China’s real estate bubble, CRE, just to name a few), the fact that we’ve held up as well as we have gives me some hope that we’ll muddle our way through. Not a lot of hope, mind you. That just wouldn’t be my style.