12.14.2011 -- 1 area of support left..

We have continued selling off. Lots of nervous longs, I'm sure, that were expecting a santa rally. If the market is going to try to pull one off still, it is going to try from the zone I have labeled in tonights chart.

Commodities got rocked today. Liquidations galore. Oil, Gold, Silver, etc. all took massive hits today. The 10 year was heavily bought.

What does this tell us? Lots of fear of the Euro collapsing.. the result of that would be a dollar surge.. commodities would get hammered and there would be a mad rush into safety into already ballooned US treasuries.

Folks think the Euro is going to fail.

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Key Levels

Upside -- 1223, 1228, 1234, 1260, 1283

Downside -- 1207, 1180, 1121, 1098

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SPX Daily;

Same channels from yesterday. I've labeled our support zone. This is the last area of defense for this market to initiate a santa rally from. If it does make that attempt, I think it will only be a short lived bounce from support here before continuing lower.

You can see we are just rolling in the stochs and still positive on the MACD. Which essentially means there is still tons of room to fall.

The bottom thin blue line is the bottom of our big wedge. That is the last line of defense for this market. If that breaks, theres the potential for a cascading waterfall down type move.

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Market participants are obviously worried here. While it wasn't a huge down day for the market averages, it was a massive down day for commodities in general and a huge up day for bond prices (down day for bond yields).

The EUR/USD broke significant support to the downside. Gold also broke significant support.

See Gary Kaultbaums report today;

http://garyk.com/?p=2149

Both of these things are indicating that what we saw today; massive commodity sell off, massive run in bond prices, and massive sell off in the EUR/USD. That those things are going to continue and possible continue at a feverish pace.

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Something to beware if you are short...

All these things scream deflation in the United States.. on the back of a soaring dollar in the face of a collapsing Euro.

If Bernanke sees what I am looking at.. and obviously he does. He's going to be quite tempted to initiate expectations of more trillions of liquidity being flooded into yet another program.

Nothing keeps Bernanke up later at night than the thought of deflation. Inflation is his good old buddy, his drinking pal, his long lost brother. Deflation is his nightmare from hell.

Just dont be surpised to see Bernanke hinting at some Trillion dollar program if we continue to see the same type of movements we saw today in the markets.

Bernanke probably is not sleeping well tonight.

GL

CJ