Look for an extended trading range

I dont see anything that changed the likelyhood that the market is going into an extended trading range with room for a lower low to 1020. Typically when going into an extended trading range, it starts like this followed by a dead cat bounce and then spends several days testing the low end. Then there is the snap-back rally to the previous highs followed by a more gradual decline to the previous lows. With so much talk of a higher USD (pure advertising by the media to get longs back IMHO) to help talk it up for the Fed, this can be expected but the market wont rally in the face if a higher USD short term to 77-79.

Also, this pullback should be a little more and longer than the last few. So 8% and a few more weeks hanging around the low end of the range would make a lot more sense than a sharp rally back to 1100 or +. So far this does not look like it will be a 9:1 upday in volume.

Is it a top yet

For all practical purposes, I must say yes, at least for the short term. That does not mean that the market can't see one more surge to 1100+ on a USD induced rally next week. The indices and various sectors all pulled back to support and the USD still does not want to rally just yet. It all seems like bracing for a dollar rally that may not start until next week or sometime soon after.

Technically, we have seen virtually every sign for a top, but stocks will continue to take their cue from currencies. There are many moving parts there. For example, Gov. Carney of the BOC spoke of possible intervention. Many traders reacted with short-covering in USD/CAD. Markets will probably continue to heed the BOC threat, so in the short term, I expect to see more of the same in the coming weeks.

So, considering how central banks are in the middle of playing a big game of chicken, it would be reasonable to assume that the USD can make one more last drop before we see some intervention, if indeed it gets to that. We all know the Fed has no choice but to debase the dollar for the foreseeable future (2-3 years).

Be careful since we are at a critical inflection point for currencies. In the past, the USD has rallied in the 4th quarter when at these kind of levels technically and fundamentally.

Playing the next dip?

It could be tricky and will take some nerve to get short ahead of the weekend but my guess is that the markets drop at the open next Monday from whatever level we close at this week.

Market wants to go lower, but it is not convinced yet which direction the US$ is going to take short term.
Things are bound to happen soon there, and probably over the weekend.
The last rate increase from a foreign central bank came over the weekend, and currencies had a big reaction the following Monday.
We will probably see next week follow that same pattern. With US$ at this level, it will be very easy to see it bounce then and stocks drop on a Monday open.
It will take some luck to peg this top, and I will probably reenter short efts before Friday close depending on where we go in the next few days.

Also, valuation is still high at 1100 for S&P, but rising earnings estimates result in raising fair value after this earnings reporting season.
This market is looking forward to 2010 and beyond, and valuations will probably remain high until future expectations come back down

For now, if i see S&P dip to 1082 again today, my guess is a bounce back to 1095 will setup a possible H&S top formation and be a good entry to get short ahead of next week for a US$ rally induced correction.