As expected, the market rallied from short-term support levels as the year-end rush to chase returns has started in full swing.To wit:

“With the markets NOW oversold, it will be critically important that support at 2020 is not broken. The next critical level of support is the short-term moving average (dashed blue line) at 2010, and then 1990 at previous support levels from early this year. It will be important for the market to hold these current levels of support without violating it over the next few trading days to set up a more tradeable short-term rally.

As shown in the chart below, the markets did not disappoint. Even with Japan slipping into its fifth recession in the last 5-years, despite massive infusions of capital, and the devastating attacks in Paris over the weekend, the market rallied strongly off of support as expected.”

“As we progress through the last two months of the year, historical tendencies suggest a bias to the upside. This is particularly the case given the weakness this past summer which has left many mutual and hedge funds trailing their benchmarks. The need to play “catch-up” will likely create a push into larger capitalization stocks as portfolios are “window dressed” for year-end reporting.

This traditional “Santa Claus” rally, however, does not guarantee the resumption of the ongoing “bull market” into 2016.“

Importantly, while the “bias” of the market is to the upside, primarily due to the psychological momentum that “stocks are the only game in town,” the mounting risks are clearly evident. From economic to earnings-related weakness, the “bullish underpinnings” are slowly being chipped away.

While the Federal Reserve (Fed)’s most recent statement acknowledged continuing concerns around international developments, it left the door open to a December rate hike. With a renewed prospect for monetary policy divergence between the Fed and other central banks is once again pushing the dollar higher.