Last week I suggested that the market would rally on ‘bad news’ and indeed that happened last Friday, but it looks like the typical December rally I was expecting this week will be postponed.

There’s some gap-fill work beckoning on the downside.

The S&P 500 has spent 3 trading days below a key ledge of volume support: the Volume Profile Point of Control (currently 2071). This level acts like a floor or a ceiling… and this time it’s a ceiling. Presumably the market has not priced in a Fed rate increase, or at least doesn’t know how to value it.

Here’s my scenario for December. Santa is waylaid because there is a huge gap in the price chart of the S&P 500 from October 2014 that needs to be filled. After the Fed announces a rate increase next week I suspect that the market will sell off precipitously and head for that gap zone (1935-1948). Stops will be run and the rank and file will be convinced we are starting a new bear market.

But I doubt that interest rates at 1-2% will kill the uber-bull. Instead, if we get down there, I will be looking for a surprise rally off the gap zone (red lines) that mysteriously takes the market to new all-time highs, thoroughly confounding almost everyone in the process.

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