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Friday Market Recap: The Failure Zone Returns and a Dubai Update

|Includes: SPDR S&P 500 Trust ETF (SPY)

Now that we've had a chance to decompress a bit following last week's Thanksgiving holiday in the U.S., and with a couple of market breaks – Christmas and New Year's Day – coming up in the next month, it's time to take a look at where the market's heading and how we're going to position the Rhino Stock Report portfolio in 2010.

One look at the chart below should bring back some memories...

Enter the return of the "Failure Zone." In the Friday Market Recap before Thanksgiving, I talked about the Failure Zone and why it was such a crucial area for the way stocks would move in the short term. We touched on two scenarios: a break above those two red lines, and a break below. What I didn't mention was what the implications were if the market decided to bounce in between them for an extended period.

But that's exactly what's happening right now.

Often, sideways consolidation points to a continuation of trend, which means that we'd expected the rally to restart after charging its batteries for a bit. But over a shorter period, that sideways movement has been volatile -- volatile enough to expect the previous recap's rules to still apply.

So, did anything change since last week? Yes indeed. The market may be granting itself a reprieve from a move down to support -- at least from now. If consolidation continues long enough to cool the overextended momentum of the market, it's quite foreseeable for the rally to move on unscathed.

Until we're tipped off either way, I'm inclined to stick with the status quo as far as our Rhino Stock Report positions are concerned. That means we'll be adding another new position this month.

Now Onto Some Market Fundamentals...

Dubai has been in the news lately because the country asked for a break on some of its $60 billion debt. To be clear, we're not talking about sovereign debt, but rather loans made to Dubai World, an independent financial arm of the emirate.

But that doesn't mean the effects of the debt standstill won't be painful for investors. The group controls some of Dubai's most famous real estate, including the Palm Islands, and the under-construction Nakheel Tower, the world's tallest building.

While much of Dubai World's debt is owned by banks in the West, U.S. financials don't bear the brunt of the financial burden for a change. Instead, U.K. and European-based banks are holding the bag until the United Arab Emirates decides to step in with yet another bailout.

Independent agencies are currently rating Dubai World's risk of default at under 40%. We'll see how things unwind.

Disclosure: No Positions