Quiet Expiration Friday as Stocks Drift Higher

SUMMARY:
- Quiet expiration as stocks drift higher but many stocks look ready to move next week.
- Tax compromise passage sets the stage, but the market just drifts.
- Leading economic indicators round out the week of data.
- Indices have tested the break over the November high. Now can they drift higher to year end, riding promised liquidity?

Blah expiration, but some good stocks look good.

It certainly was not much of an expiration Friday. It was "quadruple witching," as they call it, but it did not lead to many fireworks. Most of the action usually takes place earlier in the week. Wednesday was down, Thursday was up, and Friday was a wash like Monday and Tuesday. From the perspective of the indices, Friday was quite boring. Early on, it looked like a big open to the downside. The scale on the SPY is at 124.90, and the opening was down at roughly 124.80. Not a huge move. It started lower, drifted higher, and looks like that old low-to-high move. Everything looked fine, but the indices lost their mojo in the back half of the afternoon. They gave up a chunk of gain, and the Dow finished lower on a session of rather unspectacular gain. NASDAQ, +0.2%; SP500, < +0.1%; Dow, -0.6%; SP600, +0.6%; SOX, +0.67%; NASDAQ 100, +0.25.

There were no dramatic fireworks, but that does not mean there was no drama. Some stocks moved quite well. DECK broke out of its pennant with a nice, big break to the upside on solid volume. ANF had a nice move to the upside on volume. Sometimes volume will be accelerated on expiration, but not on all stocks. It is true for the big stocks, but small stocks are not part of the equation. Some moved but could not quite hold all the gain. RS had nice volume, and it had already been picking up as it broke out of its pennant pattern.

There were others stocks scattered around the market that are not brand name, but they are quality stocks nonetheless. EBIX made a nice break to the upside on rising volume. TIBX posting a break upside on nice volume. Some stocks are set up to move quite well if the market continues its move to the upside. The indices did not do much on the session (or on the week), but there were interesting moves by leadership stocks nonetheless. Some are breaking down, and many are still breaking to the upside.

It was a quite week. There is the drift higher after breaking the November peak, a lateral move, and then the test down to the 10 day EMA (lo and behold, that was right above the November peak), and then the bounce higher on Thursday off of that test. A break, a test, and the start to the move higher is pretty classic action in an upward-trending market. Perhaps next week we will get a continuation of this drift to the upside into Christmas and even to the end of the year. That sets the stage for what can or cannot happen in January. You never know when you have a rally up to the end of the year.

We still have a Federal Reserve worried about unemployment. Even though there is improvement in other economic areas, the Fed is focused like a laser on the unemployment rate. Until it sees unemployment improving, it will not get off the accelerator with respect to liquidity. We are promised liquidly through Q1 or the first half of next year, and possibly longer. Bill Gross of PIMCO says it could be another year before rates rise. We will see. For now, the Fed is bound and determined to bring unemployment down, and it will keep the money flowing. Now it is getting some help from the fiscal side of the equation as well.

There was not a lot of excitement in the market movement on Friday, and there was not a lot of excitement elsewhere. The tax compromise was passed, and the President signed it into law later in the session. The market did not budge on the news. I suppose it was factored in that the compromise would get the seal of approval given the elections and the dire state of the economy. Of course, this will be stimulative now even though it was not stimulative through the Bush years. At the end of two years, it will then cease to be stimulative. Is that an advanced economic equation? No. It is called the political-cycle equation. They are doing what is expedient now, and they will revisit it in two years and see whether it is expedient to extend or shut them down at that time.

In any event, they passed and there will be a bit more relief and some payroll taxes heading lower. It would be nice if they would throw in a bit of corporate tax relief. We have the worst corporate tax structure in the world. If we would reduce our rates down to, say, zero, we might actually see a boom in the US. They would never do that, however, because we believe and even the Tea Partiers believe that if you cut taxes you increase spending. Ronald Reagan disproved that. John F. Kennedy disproved that. They cut tax rates and revenue boomed. Indeed, when Bush cut tax rates the revenues boomed. Bill Clinton cut tax rates. People say he raised rates. He did, and that caused damage to the economy ultimately. However, he and his advisers were also smart enough to reduce capital gains taxes, and that offset the hiked marginal rate. It kept the economy going because it kept money flowing in. Revenues have gone up with every tax cut we have had. It is not a cost. We are not spending money. It does not increase the deficit to give a tax cut; it lowers the deficit because revenues rise more than they were when taxes were higher.

As noted, that was not exciting the market on Friday. There was not much exciting the market. There was a little M & A activity. The bank of Montreal was buying Marshall & Isley, but it did not excite the market that much. There were good earnings. ORCL and RIMM both beat the street. TTWO beat and performed quite well, gapping to the upside and moving nicely. It was joined by the larger cap brethren that did quite well on their own. Outside of their own numbers, that did not excite the market that much either.

Leading economic indicators were solid at 1.1% when 1.2% was expected. That was almost three times what was reported in October. Not bad news, but it was ho-hum. Boeing said it was going to add 4-5K jobs in 2011, and that still didn't get things that excited. It was just a day where the market had tested and was drifting higher. It was expiration, positions were being moved, and the indices were dull. Some stocks are in good position. They either moved well or put themselves in very good position to move well next week. That had me interested. We normally do not do a lot of buying on Friday, but we did our share. We picked up some shares in ANF. It had a nice move. We picked up some RS, and it is doing just fine. FCX bounced nicely. It has better volume and looks like it might be starting its pre-split move. SLB was up a bit, but it was not that much. I am looking for positioning for next week, and I have seen some good positioning.

Add that on top of a week that showed very good economic data. Retail sales were up 0.8%. A lot of that was gasoline sales, but there was buying ongoing nonetheless. New York Empire Manufacturing came in at 10.5 versus 3 expected, and a -11 in November. Industrial production rose 0.4% versus a -0.2% in October. Capacity hit 75.2 versus 74.9 in October. The Philly Fed came in very nicely at 24.3 versus 13 expected and 22.5 in November. There were some good moves the Philly Fed, for instance. The average workweek hit a five or six year high. There was outstanding news. It was not able to excite the stock market to big gains on the week, but we did get that bounce off of the test of the break over the November peak. That is important. It was not a huge move, but stocks are well-positioned to continue a drift higher into Christmas.


OTHER MARKETS

Dollar. The dollar posted a gain on the session, but it was down early on. It sold off and tapped near the 50 day EMA, but then it reversed for a gain (1.3186 Euro versus 1.3234 Thursday). It has been chopping around in a range since pulling back after its great run off of its low. It is trying to regroup and set a new rally. It could very well do that.

http://investmenthouse.com/ihmedia/dxy0.jpeg


Bonds. Bonds continued their recovery on Friday. They were slaughtered over the past four weeks, but they bounced on Thursday and Friday they were running strong (10 year 3.33%, versus 3.43% Thursday). Bonds look like they are in a bounce. Obviously, you will get bounces in a downtrend, even in horrific downtrends. That is what bonds are showing at this point.

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Gold. Gold had a tough week. It sold off sharply, but it is trying to catch itself at the 50 day EMA. It has caught itself there before when it broke its trend in mid-November. It looked like it was cooked and rallied back. It has done the same thing here, and it is trying to bounce off the 50 day EMA. It is looking heavy, but it did manage to post a gain on the session ($1,379.80, +8.80).

With the economy somewhat in recovery mode, there is a view that this will alleviate some inflation pressures. Really and truly, growth does alleviate inflation because there is supply; we avoid the supply/demand tightness that leads to inflation. Ultimately, there is a tremendous amount of liquidity out there that will cause inflation. While there may be a near term bluster in gold, it will move higher in the long term. There is a tremendous run from July into October, straight up. Since then, it has become choppier but has not broken down by any stretch of the imagination. It is still making higher lows. As long as it is making higher lows, it is hard to make the argument that it will fall. It looks choppy, and it takes a long time for a trend that is this strong to turn. It may do that. For now, it is holding the 50 day EMA and we will see what happens moving down the road.

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Oil. Oil has been holding up well all week, and it was able to add some on Friday ($88.52, +0.82). It has been moving laterally all week after breaking to a high. It has not been able to get on track. One of the reasons is the dollar has been bouncing back and forth, trying to firm up. That had an impact on the price of oil, of course. As the dollar declines, oil prices rise because it costs more dollars to buy every barrel of oil. As the dollar rises, it takes fewer dollars. Oil prices do not have the rise just because the dollar is weaker.

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TECHNICAL SUMMARY

INTERNALS

Volume. It was a bland day. Volume was up 40% on the NASDAQ to 2.34B shares. It was up 100% on the NYSE to 2B shares. That is all expiration volume. It does not really mean a thing.

Breadth. Advancers were very flat, matching the session. They led 1.1:1 on the NASDAQ and 1.3:1 on the NYSE.


CHARTS

SP500. Taking a bigger view, there is the April peak, the selloff into the summer, the rally back into November that cleared the April peak. Then the market sold back, made a good test, and then rallied through November. As noted, it has come back slightly. It rallied up, flattened out as it got to the November peak, and then broke through. It has come back slowly and quietly, testing that move and holding at the 10 day EMA. It started to bounce on Thursday, and it added a bit on Friday. Nothing big on Friday, but it made a test that opens the door for it to drift higher maybe even to rally higher into the end of the year. That is the way it should work, although it has been quiet and hard to see. It makes a lot of sense.

NASDAQ. The NASDAQ made the break. It flattened out after it broke. It tested the 10 day EMA, held above the November peak, and it started to move back up. Nothing spectacular. Kind of quiet and hard to see, but that is what it looks to be doing.

SP600. SP600 was a bit more dramatic. They took the lead late in the year. They rallied through that November peak and really made the break through it. It flattened out more at the April peak, but then it broke through, tested, and now it is moving up. It added the 0.6% gain on Friday and is looking good compared to the large-cap indices.

SOX. SOX posted a 0.7% gain. It is the same kind of action. A break through, nice test to the 18 day EMA, and moving back up. That is what you would expect to see.

SP400. The SP400 does not look as pronounced at the SP600, but it did make a solid break over that November peak. It has been moving laterally. There is the test of the 10 day EMA, and now it is trying to move higher.

I do not see stocks in a position where they will roar ahead. It is the holidays, and there is a lot of liquidity in the system. They have run a good ways, but it has also tested recently. Let's drift higher and see where we can go into the end of the year. There are plenty of stocks looking good, so that makes sense.


LEADERSHIP

Financial. JPM is still pulling back into its trading range. Maybe it does not hold and make the break, but this is where you watch. There is a well-defined trading range. It is coming back to test. If it holds at the 50 day EMA, a lot of times you get the breakout of the trading range at that point. It has made several rotations in it. After that, look for a higher low to make the breakout. It is usually at a level like the 50 day EMA. It has never been able to hold at that level as it has come back. If it does, this is the first time it will have held there, and that will be in the upper half of the range and position to make the break to the upside. Always watch for that when you are looking at a pattern or a trading range that has been ongoing for quite some time; that higher low is often your ticket to a breakout.

GS had a pullback off of its recent highs. We will see if it can hold and make the next break to the upside. WFC had a nice test back to the 10 day EMA, catching up with it. That may send it back to the upside.

Industrials. Industrials have been enjoying very nice moves. Not so great on Friday, but they have had a good week and are testing back. CAT came back 0.5% on the session. No major damage done at all. JOYG announced great earnings on the week, and it gapped to the upside. It is not giving in on its gap. Whenever you have a gap, you look for the lateral move if it is a breakaway gap. Then as it makes the move higher, you can move into the upside. I will keep an eye on that one. CMI had a good week. A nice move higher, testing back slightly as the week ended.

Energy. Energy was chopping around the entire week, but SLB looks good and ready to move back up. HAL looks solid with a pullback. BTU looks solid. Look at that pennant that has formed on top of the other one. That could be gravy on a new break higher. I love the tight range, quieting down, and sitting right on top of the other consolidation. That is always a good indication.

Retail. Retail is still doing well. Some consolidation, some breaks higher. DECK consolidated and then made the break on Friday. LULU continued to move higher. It had a nice gap to the upside, tested, and it is taking off to the upside once more. Some retail is doing quite well. EAT is moving higher off of a test after a nice run to the upside. YUM is trying to stretch out and make a new move to the upside.

Semiconductors. Semiconductors had a pullback on the week, but that may present opportunity. LRCX pulled back one day, and then it is bouncing again. Not a lot of weakness there. NVLS is similar. It is working its way higher at the 10 day EMA, showing good strength. TQNT has a nice test, an ABCD pattern. We will see if it can make the break to the upside. It is not all wonderful. BRCM is struggling. It broke below the 18 day EMA on Wednesday, and it is having a hard time recovering

Technology. A lot of small names are doing better, particularly in the software area. EBIX started to bounce higher on stronger volume after a nice test of a break the lows. EPIC has a nice pattern and looks like it could make a further break upside. ADVS announced a split, and it looks like it may be ready to put in a pre-split run. The cloud computing was all the rage, with the FFIV and others moving higher earlier in the year. AKAM needed to consolidate, and it is doing that in this ranging ascending triangle. The neat thing about this pattern is AKAM made a big advance. It did give back some ground with a gap lower in late July, but it immediately recovered. Instead of giving ground, it is consolidating in a big triangle laterally. When it goes, it could go big. Today was a day the aggressive players could get in, coming off of this bounce. We will look to see if it makes the breakout above the upper trendline. Some old names are coming back, and some new names are starting to perform well and take the lead.

Steel. Metals have been an important player all week. FCX made a nice 1-2-3 pullback. A nice doji on Thursday, and it bounced higher on Friday on volume. That was our cue to move in. STLD made a very solid break higher. RS made a breakout upside. It did not hold all of it, but it is breaking out of its pennant. MTL has a nice bounce off of a 10 day EMA test.

There are stocks well-poised to move higher in a continued upside drift in the stock market.


THE MARKET

MARKET SENTIMENT

VIX. Volatility broke down sharply this week. Friday was a very sharp break. It was probably influenced by expiration, so I do not want to read too much into it. It is worth noting that the last time it was this low was back in March and April of this year. When it got this low, the market rolled over and went into some serious selling. Looking at the SP500 chart, it peaked in late April and fell into the base that walked through the summer, and then it broke higher to begin the fall. At this level, volatility can be an issue. We will see what happens. There is a lot of complacency. People are not buying much protection out there because they assume the market will go up. That is part of the problem. When everyone who will be in the market gets in and they think nothing can go wrong, most of the money is put to work. At that point, that is when you can have pullbacks in the market.

Many people are more bullish right now. The bulls rose to 56.8% of investment advisers versus 56.2% the prior week. It has been on a steady rise, and it is getting to the point of being a little more bearish. That is typically reserved for the 60-65% bulls range. At that point, most of the ammunition is used up. The bears continue to slide. They are at 20.5%, down from 21.3% the prior week. That is a significant drop. It has been hanging around at the 21% area for quite some time, and it is down from 28% in September. Bears are not looking too bearish at this point. You get around 15%, and that is really bearish. We are just running out of steam; it is not a sign that the locomotive is stopping and going to fall back on you.

VIX: 16.11; -1.28
VXN: 17.31; -0.94
VXO: 15.52; -1.74

Put/Call Ratio (CBOE): 0.78; -0.09


Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 56.8 versus 56.2%. Moving up from a small dip the prior 2 weeks (from 55.7% and 56.2%), advisors returned to their bullishness, matching the peak on this move. Strong surge from 48.4% just a month back, the strongest move upside since May, indeed topping that level and getting closer to the 5 year high at 62.0. Moving toward the level considered bearish, i.e. where so many are in the market and believe it is going up that the ammunition to send it higher runs low. This is where you start to be careful and watch for breakdowns, but there is also a lot of liquidity being pushed into the market and that can continue the move despite excess bullishness. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 20.5% versus 21.3%. Back on the decline after bumping modestly higher as the market flattened out. Down from 28.3% in September. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level, above which is considered bullish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +5.66 points (+0.21%) to close at 2642.97
Volume: 2.347B (+41.15%)

Up Volume: 1.526B (+212.39M)
Down Volume: 1.163B (+750.68M)

A/D and Hi/Lo: Advancers led 1.1 to 1
Previous Session: Advancers led 2.17 to 1

New Highs: 217 (+41)
New Lows: 38 (+13)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: +1.04 points (+0.08%) to close at 1243.91
NYSE Volume: 2.025B (+100.17%)

Up Volume: 1.204B (+460.848M)
Down Volume: 790.98M (+531.401M)

A/D and Hi/Lo: Advancers led 1.33 to 1
Previous Session: Advancers led 2.02 to 1

New Highs: 309 (+63)
New Lows: 37 (+6)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: -7.34 points (-0.06%) to close at 11491.91
Volume DJ30: 358M shares Friday versus 163M shares Thursday. Expiration trade.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

The market will be closed for Christmas Eve on Friday, so we have a short week. We also have a market that is not moving very strongly, but it has not lost its upside bias either. It tested midweek, and it started to bounce toward the end of the week. That shows the upside bias is still there after testing the breakout. There is a bit of economic data starting on Wednesday with the usual applications for the week. We have the third estimate of GDP for Q3, and it is expected to come in a bit stronger. There is some data that has come in better with inventories and that sort of thing. That is a positive, I suppose. Existing home sales will come in, and we saw new sales this week. Thursday brings personal income and spending, durable goods orders, initial claims, Michigan Sentiment, and new home sales. Talk about packing it all in before the end of the week and Christmas.

We will have a lot to deal with, and the question whether the market will just ignore it and drift higher as it did on Friday. As noted in the leadership section, there are many stocks in great position. They are moving up well or in position to move up well, whether it is a drift or a solid upside break. We do not like to buy that much on a Friday, but when good stocks are in position and look ready to move up and start the move, you want to get a good entry point. Then you have a nice exit point if it does turn against you. That said, I still think we will get upside because it looks positive moving into next week.

The market has an upside bias, it has the tax bill passed, and it has the Fed on its side. Europe continues to struggle, but China looks better, India looks better, and Brazil looks better. That is solid despite the drag of Europe and the US; indeed, even the US looked better. The manufacturing reports last week showed that things were picking up, as did other reports such as production and capacity. Despite all of the negatives, the economy is trying to move up and support what the stock market has shown for the past several months. The question is whether the stock market continues to move higher. There is the flood of liquidity, and there is the administration and Congress providing fiscal support by extending the tax cuts and lowering payroll taxes. That might provide more impetus for the economy to move up. If that is the case, stocks should move up a bit ahead of that, and that is exactly what they are doing.

Again, the break over the November peak, the test, and now just drifting back up. I would love to see a drift higher into Christmas and the New Year and bank some more solid gain. After all, we still have all that liquidity out there, and it could be a good 2011 as well. No predictions, though. We always take what the market gives. You cannot go too far out on a limb because it will always break underneath you. You need to follow what the market is doing, and you can anticipate a bit. You look ahead to find good patterns and good sectors. As they start to make the move, you move in. That is exactly what we were doing this week, and that is what we will continue to do. Enjoy your shopping and enjoy a great weekend. We will have a short week next week, but we will see if we can make some more money to help pay those Christmas bills.

Have a great evening!


Support and Resistance

NASDAQ: Closed at 2642.97

Resistance:
2725 from July 2007 interim peak
2729 is the 127% Fibonacci extension of the August 2010 run
2735 from late 2007 interim peak
2862 is the 2007 peak

Support:
2593 is the November 2010 high
The 18 day EMA at 2594
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
2550 from May and June 2008 peaks
2540 is the gap up point from early November
2535.28 is the April 2010 intraday peak
2530 is the April 2010 closing peak
The 50 day EMA at 2523
2518 is interim peak from April 2010
2511 is the lower range of the November gap up point
2482 is the recent October peak
2460 is the November 2010 low.
2434 is the May interim peak and the 78% Fibonacci retracement of the April selloff.
2425 is an interim peak from May 2010
2382-2395 from 2008
2324-2370 is a range of resistance from early 2008
The 200 day SMA at 236-0
2341 is the June 2010 peak
2320 to 2326.28 is the January 2010 high
2319 from the September 2008 peak
2310 is the August 2010 peak


S&P 500: Closed at 1242.87
Resistance:
1278 is the 127% Fibonacci extension of the August 2010 run
1313 from the August 2008 interim peak

Support:
1227 is the November 2010 peak
The 18 day EMA at 1222
1220 is the April 2010 peak
The 50 day EMA at 1197
1185 from late September 2008
1174 is the May 2010 high, 78% Fibonacci retracement of April peak
1173 is the November 2010 low
1170 is the prior March 2010 high
1156 is the Sept 2008 low
1151 is the January 2010 peak
The 200 day SM A at 1141
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1129 to 1131 is the June and August 2010 peaks
1119 is the early December intraday high
1114 is the November 2009 peak
1106 is the September 2008 low
1101 is the October 2009 high and the recent May and June 2010 interim peaks
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak as well as several other peaks and valleys even in 2010.
1065 is the May flash crash intraday low.
1044 is the October 2008 intraday high AND the February 2010 low
1039 to 1040 are the May, June, and August 2010 lows


Dow: Closed at 11,499.25
Resistance:
11,734 from 11-98 peak

Support:
11,452 is the November 2010 peak
The 18 day EMA at 11,342
11,258 is the April 2010 peak
11,205 is the April closing high
The 50 day EMA at 11,167
11,100 from the 7-08 low
10,963 is the July 2008 low
10,920 is the recent May high
10,730 is the January 2010 peak
The 200 day SMA at 10,691
10,609 from the Mid-September 2008 interim low
10,594 is the June 2010 peak
10,496 is the November 2009 high
10,365 is the late September 2008 low
10,285 is the late December consolidation peak
10,260 from the May and June 2010 interim peaks are breaking
10,209 is recent August 2010 low
10,120 is the October 2009 peak
9938 is the August 2010 low
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low
9829 is the September 2008 closing high
9774 is the May 2010 intraday low


Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

December 17 - Friday
Leading Indicators, November (10:00): 1.1% actual versus 1.2% expected, 0.4% prior (revised from 0.5%)

December 22 - Wednesday
MBA Mortgage Applications, 12/17 (07:00): -2.3% prior
GDP - Third Estimate, Q3 (08:30): 2.7% expected, 2.5% prior
GDP Deflator - Third, Q3 (08:30): 2.3% expected, 2.3% prior
Existing Home Sales, November (10:00): 4.65M expected, 4.43M prior
FHFA Home Price Index, October (10:00): -0.7% prior
Crude Inventories, 12/18 (10:30): -9.85M prior

December 23 - Thursday
Personal Income, November (08:30): 0.2% expected, 0.5% prior
Personal Spending, November (08:30): 0.5% expected, 0.4% prior
PCE Prices - Core, November (08:30): 0.1% expected, 0.0% prior
Durable Orders, November (08:30): -1.0% expected, -3.3% prior
Durable Goods Orders, November (08:30): 1.0% expected, -2.7% prior
Initial Claims, 12/18 (08:30): 424K expected, 420K prior
Continuing Claims, 12/11 (08:30): 4075K expected, 4135K prior
University of Michigan, December (09:55): 75.0 expected, 74.2 prior
New Home Sales, November (10:00): 303K expected, 283K prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Christmas Rally Part 2 Could Be Very Nice

SUMMARY:
- More of the same, but that means a continued melt higher for stocks.
- Financials lead again and SP500 climbs. If industrials, energy, and commodities resume their moves, the Christmas rally part 2 could be very nice.
- China starts a new round of news, announcing another bank reserve increase.
- Michigan Sentiment tops expectations: at this stage of a recovery sentiment actually means what it says.
- Some very nice tests are setting up new buys and new rallies toward year end.

No volume but stocks rally off a choppy morning to close with decent gains at session highs.

Friday was an interesting day, although it did not seem that interesting when watching the market. Very similar to the action Wednesday and Thursday with non-spectacular moves to the upside, but moves to the upside nonetheless. There was indecision early on. Futures were up, but they came off approaching the open. The market did manage to open up, but sold after the bell into the first hour. Looking at the SPY, stocks filled the gap completely. Looking at the intraday chart after that opening fade, you can see two reaches lower that filled the gap from the Thursday close, but that bounced right back up in the same bar. Buyers were ready to move in. It did not hurt that the Michigan Sentiment came out much better than expected at 74.2 versus the 72.5 anticipated. That topped the prior month of 71.6, posting the best reading since June. Consumers do indeed feel better. You can see it in retail sales and in the consumer sentiment indices. Consumers are coming out of a two-year period of frustration at with the economic dysfunction. They have a little more money in their pocket as the stock market has been up, so they feel a little better. With this kind of deep recession this is the one time where sentiment readings actually reflect the real actions of the consumer.

The market bumped up ahead of that news it comes out early for subscribers but it never really took off. It was a slow melt to the upside once again. By the way, note the inverted head and shoulders through mid-morning. As I often say, mid-morning is the fulcrum for the rest of the day, and the market trended higher into the close. All the indices drifted higher, not just the SP500. It did allow the SP500 to put some more real estate between it and the prior November peak at 1227. The SP500 closed at 1240, so it has 13 points. That is not an insurmountable lead that will prevent it from ever selling off to that level or breaking it, but it is getting a little more comfortable. Volume was down, so it was no biggie in terms of the strength of the move, but the bias continues to be upside. After this pause at the prior peak, it looks like the SP500 wants to drift higher, and perhaps pick up some steam to rally into the Christmas season as we look for part two of the Christmas rally (or, as the politically correct would say, the "holiday rally").

SP500 put some real estate on the November peak, but was behind the times as far as the growth indices. They were in the lead again. NASDAQ, +0.8%; SP500, +0.6%; Dow, +0.35%; SP600, +1.2%; SOX, flat; NASDAQ 100, +0.6%. It is the smaller issues that are doing better, and that is good for the economy. The market shows the smaller stocks performing better, and they need the stronger domestic economy to earn those higher stock prices. It looks better for the US economy, at least the way the market is moving now.

There was other important news out in the morning. The trade balance was a lot better than expected. It was only down 38B versus the 44B expected. I can live with that. Import and export prices were up. Taking out oil, they still rose 0.8% in December. Adding in oil, it was 1%. We are importing a little inflation, no doubt. Michigan Sentiment came in just fine. The treasury budget was down considerably. The deficit grew much more than expected, but that is no surprise as government spending remains very high.

There was other important news that impacted the market and could impact the early trade next week. China increased the reserves on its banks for the third time in five weeks. I think it is a half dozen times over the past six months. Its CPI is out on our Saturday. Will that warrant China raising interest rates? It is one thing to raise reserve requirements of the banks; it is another thing to raise interest rates. They have not done it yet, and a lot of people are concerned that it will happen.

PIMCO raised its forecast for 2011 to 3.5 GDP growth from 3%. That was based upon the tax-cut compromise. If it gets passed, we should have a better economy. There is a little extra goose there from payroll taxes and that sort of thing. It is interesting that there is a 53B kicker in there on the extension of the unemployment benefits. While that does give people some much-needed funds, you have to remember that the employers are paying for that. If they are paying for people who are not at work, will they have much incentive to initiate new jobs? I know that sounds harsh, but it is true. It is very much a cost to these companies and it is factored into the bottom line. They have to do it.

We bought some NFLX yesterday, and then it moved onto the SP500 and enjoyed a nice day as a result. Remember I had talked about a pause. Energy stocks and industrials were taking a pause while the financials continue to move higher. If the SP500 could get these on track, it could make a strong upside move. Even with these important sectors resting that help lead it higher, it is moving to the upside. That is important. When these good-looking patterns start moving up, then the SP500 might get some real momentum behind this move.


OTHER MARKETS

Dollar. The dollar did not go anywhere on the session (1.3224 Euro versus 1.3268), putting in just a modest gain. It is testing after a big move, a pullback, and now it is trying to get on track again. It wants to see what will happen in China, and that held it back a little to end the week.

http://investmenthouse.com/ihmedia/dxy0.jpeg


Bonds. Bonds sold again (10 year US treasury 3.33% versus 3.21% Thursday). Bonds are still a slaughterhouse right now.

http://investmenthouse.com/ihmedia/tlt.jpeg


Gold. Gold did not have as great a day. It bounced nicely on Thursday, and it lost some ground on Friday ($1,384.90, -$7.90). It sold off intraday and rebounded. It is trying to find support at this level of the October interim peak. An important level coming up for gold. If it reacts well next week, it will take off to the upside. After China, if it does not react well, it will sell back down maybe to 1325.

http://investmenthouse.com/ihmedia/xgld.jpeg


Oil. Oil had been on a tear, and it is softening a bit ($87.89, -0.58). It is sitting right on top of a prior peak, and it looks beautiful for a new break to the upside.

http://investmenthouse.com/ihmedia/xoil.jpeg


TECHNICAL SUMMARY

INTERNALS

Volume. Volume was considerably lower, falling almost 9% on the NASDAQ to 1.7B and down 3.5% on the NYSE to 975M. That was below average, so it was not a big day. Stocks just drifted higher, and there were no sellers. There were not a lot of buyers, and without the sellers, the stocks drifted to the upside.

Breadth. Breadth was not bad at 2:1 on the NASDAQ, but it was a mediocre 1.8:1 on the NYSE.


CHARTS

SP500. SP500 broke above its April peaks and is now taking out its November peak, joining the other indices. It is moving higher. It has some distance on that about 13 points. Not totally a comfortable level, but it is feeling the upside. If it gets the industrials and energy stocks back in the fold, it could make a nice move. It has broken through the old highs, and now it is looking at the 127% Fibonacci extension. It has room to run, and there is no real resistance overhead right now.

NASDAQ. NASDAQ has broken through its two prior peaks and is moving up well. Volume is not huge, but it is putting more distance on that November peak. It rallied, paused, and now upside again. Will it continue indefinitely? I do not think so. It might get some trouble right before Christmas and the New Year, but for now we are letting our positions run because it continues to move higher. The path of least resistance right now is money chasing performance toward the end of the year.

SP600. After a lateral move of three days, a big 1.2% move to the upside. No volume overall in the NYSE, but there is plenty of buying in the smaller-cap names. That is a good harbinger for the rest of the economy, thus the stock market forecasts a better and improving economy. It can just keep on moving if the economy keeps on improving. Obviously, investors are viewing the tax compromise very favorably.

SOX. SOX did not go anywhere on the session. It was basically flat, but it has had an incredible run over the past several months. I do not think anyone will get their feelings hurt if it takes a day or two off.


LEADERSHIP

Financial. Financials were leaders yet again on Friday. JPM moved to the top of its range. It was looking nice, breaking through the 200 day EMA. There is serious leadership out of the financials. WFC gapped to the upside, continuing its move. It was not as powerful but still looking quite good. GS moved up and challenged its prior peak. Remember it formed this ABCD pattern, and it is rallying back toward that prior high. Financials are making their moves.

Industrial. Industrials had been moving well they helped lead. They are not there yet, but they are making nice pullbacks. CAT had a nice three-day pullback. 1-2-3 as the 10 day EMA rises up below it. CMI shows the same type of thing. A little 1-2-3 pullback towards the 10 day EMA. That often leads to a new move higher. DE could not wait. It had a twelve-day pullback, and now it surged higher on rising volume on Friday. Very nice moves from this leading industrial, but the others will have to catch up.

Energy. Energy is the same issue. A very nice lateral move by HAL. Nice pullback. BTU got a little rocky, but it has checked up, moved laterally, and it looks like it is ready to make another move to the upside as well. We are getting some help from these key groups.

Metals. FCX announced a stock split this week, and it moved up a little bit. It is trying to move up off its test and help out the market overall. XME moved higher off its 10 day EMA test on Friday, starting back up. We picked up positions in that as well.

Technology. I said it was the smaller issues that were performing better. AAPL was up on the day, but just 0.25%. It is still struggling at the top of its range. JNPR broke out of its triangle on Thursday. It did not add much on Friday, but it tested just as I wanted it to. We picked up some positions and it started to recover. FFIV gapped up because it was being added to the SP500, so there is good reason for it to move. RAX had a big surge. There is talk of a possible buyout. We used to surge to take some of the December options off the table for some good gains. Stocks have been moving well, and after this little pullback, they continue to set up and rally again. The large caps are struggling a bit while the smaller issues are setting up and looking like they are getting ready to move once more.

Retail. Retail was lagging a bit. It tested as well, which is perfectly fine because it rallied well. DECK made a new bounce off the 10 day EMA on Friday. A very powerful stock. LULU continued higher with an 8% move after its great earnings the other day. Restaurants have been performing well. EAT has had a really nice test of this break higher. That could give an interesting entry point for a new run to the upside.

Miscellaneous leaders. TIBX had a nice lateral move as the 10 day EMA rises up to it after a nice stair step higher. Looking really good. PVH had a nice lateral move after a breakout. There is a lot of this. SLAB had a nice break higher and now has a little pennant or flag, moving laterally. There are many stocks that have moved well, made a small test, and are still in position to move again. This is where we get that second push higher of the second half of the Christmas rally. As these stocks break higher, they would be great stocks to ride further to the upside. We may not stay in them for very long, but if we get out another two weeks towards Christmas, that would be outstanding. Many stocks are in similar positions whether large caps on the NYSE and the SP500 or the smaller issues that are on NASDAQ and the NYSE. There are plenty of leaders still out there, poised to move higher. I do not know what will happen after the first of the year, but it sure looks like we can get more upside out of them right now.


THE MARKET

MARKET SENTIMENT

VIX. Volatility broke below the recent lows, but in March and April it was down much lower. Of course, that was before the market sold off and it rallied higher. Remember that volatility has to set up a correlation, and it is not really doing that right now. Also, volatility can fall down considerably as the market rallies without necessarily being an indication that the market is going to sell off. It has to have that correlation develop, and it tried to develop in October to November. There was a loose correlation there, but it does not look like that is the case right now. The market is drifting higher and volatility is drifting lower. People would say the market is apathetic, and that sets it up for some selling. That could be, but it just rallied, paused and tested, and then rallied again. This was after a very good pullback from late November through early December. It set itself up well, and now it is moving. I am not going to get to upset about volatility right now.

VIX: 17.61; +0.36
VXN: 18.77; -0.29
VXO: 16.52; +0.36

Put/Call Ratio (CBOE): 0.76; +0.05


Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 56.2% versus 55.4%. After a small dip the prior 2 weeks (from 55.7% and 56.2%), advisors returned to their bullishness, matching the peak on this move. Strong surge from 48.4% just a month back, the strongest move upside since May, indeed topping that level and getting closer to the 5 year high at 62.0. Moving toward the level considered bearish, i.e. where so many are in the market and believe it is going up that the ammunition to send it higher runs low. This is where you start to be careful and watch for breakdowns, but there is also a lot of liquidity being pushed into the market and that can continue the move despite excess bullishness. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 21.3% versus 21.8%. After bumping modestly higher the prior week (from 21.6%), the bears were in decline again. Down from 28.3% in September. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level, above which is considered bullish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +20.87 points (+0.8%) to close at 2637.54
Volume: 1.691B (-8.73%)

Up Volume: 1.295B (+85.149M)
Down Volume: 349.502M (-323.78M)

A/D and Hi/Lo: Advancers led 2.17 to 1
Previous Session: Advancers led 1.44 to 1

New Highs: 0 (-186)
New Lows: 0 (-21)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: +7.4 points (+0.6%) to close at 1240.4
NYSE Volume: 974.691M (-3.46%)

Up Volume: 746.375M (+39.646M)
Down Volume: 220.674M (-61.637M)

A/D and Hi/Lo: Advancers led 1.84 to 1
Previous Session: Advancers led 1.28 to 1

New Highs: 407 (+112). Continued strength here as the small caps lead the way higher.
New Lows: 93 (+44)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: +40.26 points (+0.35%) to close at 11410.32
Volume DJ30: 152M shares Friday versus 168M Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

There is a boat load of data coming out next week, starting on Tuesday with retail sales and the PPI. A Fed rate decision will be out. People will be curious about what the statement says, but I do not expect it will be too different. Bernanke has been out in support of Quantitative Easing. With this tax compromise, he may feel better about getting some fiscal help. Wednesday is the New York PMI, industrial production and capacity, and the CPI. We will see if inflation is kicking up or not. I do not know if you can trust the government on that. Initial claims are on Thursday along with housing starts and the Philly Fed. Leading economic indicators are out on Friday.

The big news will likely be on Monday when there is nothing scheduled because China will make some kind of decision this weekend. The scuttlebutt is that China will say it needs to raise interest rates because it is having too much threat of inflation. That has people worried that it could dampen the new move higher, particularly since the drift up this week was on low volume overall. China tends to release news in threes. The first two stories are typically downers, and then the third one is a more positive spin. That is the way they do things. We may have something to deal with in terms of an interest-rate hike next week. I am watching how gold will react to that. It is in a critical point. Gold has recovered nicely, and it is testing. It is right at its trendline, and it looks like it is trying to find buyers here. It will impact a lot of other currencies and stocks as well.

If China raises its interest rates, it makes its currency a little more valuable, although it does not let it float. That is okay because it will still have the impact. Everyone will know things are solid there, and it will impact the US currency. It may make it decline a bit. If the US currency declines somewhat, stock prices may continue higher. That is not what you are hearing from a lot of people. They say if China raises rates we could suffer. The idea is that if it raises rates and slows down its economy, the US will suffer because we cannot sell as much to them. Then the cycle goes on. I am looking at it from a different angle. That might be the first reaction. After that, the reaction might be good for US stocks long term if the dollar goes down a bit. Then the rally will continue.

After all, we are looking for a continuation of the rally, not necessarily a new powerful rally continuing. Some are saying that is the case, and maybe they are right. There is certainly nothing overly negative impacting the market right now. There is a lot of liquidity coming in, there is some year-end chasing of performance happening, and there is plenty of leadership. With that combination, I am not going to sit it out. I will look at the stocks I have talked about that have rallied well and have made a good pullback. They can provide us a nice vehicle to rally higher as the Christmas/winter holiday rally continues.

The news is important. We have to look at it because it does impact the market near term, and the market always overreacts in the near term whether it is good or bad. There could be a negative reaction, but if so, I do not think it will be a complete rollover. It is possible. If it is, after the indices have broken to a new high and they roll over and crash back town, that could be a problem. If it is just a test or maybe even a positive reaction, I think we will be okay. A test gives us even better buy points on these stocks that have pulled back. If it continues higher, those stocks will start breaking to the upside and we can step in and catch them as a continued part of our rally to the upside.

We have taken some profits this week on some stocks with December options that were running out of time. We had some pretty huge gains (300-400%+), so I took them off. You take some off along the way with partials, and then you let them run until you cannot let them run anymore, or until the market takes you out. We have a lot of big gains for January options as well, but we will let them run. I am mostly letting positions run because SP500 was the lagging index, but it, too, broke above the November peaks and is moving higher. With the laggard finally making its move through the November peak, I am not going to cut the move off. Indeed, I will look to find new ways to play the next leg to the upside. As noted, there are several of those.

We will be ready with some new plays maybe a lot of new plays from the looks of it on stocks that we already own positions in. No problem with that; they are working well. They are setting up new moves just like DECK did back in November with a flag pattern after it broke out of the triangle. I will look for the same thing with these other stocks as they test moves after solid moves to the upside (such as CAT). With that in mind, and with the mindset that we will take advantage of a last push toward the holiday, we will find good plays for you.

I will see you on Monday, ready to put those plays into action. Have a wonderful weekend and enjoy your Christmas shopping.


Support and Resistance

NASDAQ: Closed at 2637.54

Resistance:
2725 from July 2007 interim peak
2735 from late 2007 interim peak
2862 is the 2007 peak

Support:
2593 is the November 2010 high
2569 is the November gap up point through the April 2010 peak
The 18 day EMA at 2567
2550 from May and June 2008 peaks
2540 is the gap up point from early November
2535.28 is the April 2010 intraday peak
2530 is the April 2010 closing peak
2518 is interim peak from April 2010
2511 is the lower range of the November gap up point
The 50 day EMA at 2499
2482 is the recent October peak
2460 is the November 2010 low.
2434 is the May interim peak and the 78% Fibonacci retracement of the April selloff.
2425 is an interim peak from May 2010
2382-2395 from 2008
2324-2370 is a range of resistance from early 2008
The 200 day SMA at 2351
2341 is the June 2010 peak
2320 to 2326.28 is the January 2010 high
2319 from the September 2008 peak
2310 is the August 2010 peak


S&P 500: Closed at 1240.40
Resistance:
1313 from the August 2008 interim peak

Support:
1227 is the November 2010 peak
1220 is the April 2010 peak
The 18 day EMA at 1212
The 50 day EMA at 1189
1185 from late September 2008
1174 is the May 2010 high, 78% Fibonacci retracement of April peak
1173 is the November 2010 low
1170 is the prior March 2010 high
1156 is the Sept 2008 low
1151 is the January 2010 peak
The 200 day SM A at 1138
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1129 to 1131 is the June and August 2010 peaks
1119 is the early December intraday high
1114 is the November 2009 peak
1106 is the September 2008 low
1101 is the October 2009 high and the recent May and June 2010 interim peaks
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak as well as several other peaks and valleys even in 2010.
1065 is the May flash crash intraday low.
1044 is the October 2008 intraday high AND the February 2010 low
1039 to 1040 are the May, June, and August 2010 lows


Dow: Closed at 11,410.32
Resistance:
11,452 is the November 2010 peak
11,734 from 11-98 peak

Support:
The 18 day EMA at 11,271
11,258 is the April 2010 peak
11,205 is the April closing high
The 50 day EMA at 11,115
11,100 from the 7-08 low
10,963 is the July 2008 low
10,920 is the recent May high
10,730 is the January 2010 peak
The 200 day SMA at 10,670
10,609 from the Mid-September 2008 interim low
10,594 is the June 2010 peak
10,496 is the November 2009 high
10,365 is the late September 2008 low
10,285 is the late December consolidation peak
10,260 from the May and June 2010 interim peaks are breaking
10,209 is recent August 2010 low
10,120 is the October 2009 peak
9938 is the August 2010 low
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low
9829 is the September 2008 closing high
9774 is the May 2010 intraday low


Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

December 10 - Friday
Trade Balance, October (08:30): -$38.7B actual versus -$44.5B expected, -$44.6B prior (revised from -$44.0B)
Export Prices ex-ag., November (08:30): 0.8% actual versus 0.6% prior (revised from 0.7%)
Import Prices ex-oil, November (08:30): 0.8% actual versus 0.3% prior
Michigan Sentiment, December (09:55): 74.2 actual versus 72.5 expected, 71.6 prior
Treasury Budget, November (14:00): -$150.4B actual versus -$134.0B expected, -$120.3B prior

December 14 - Tuesday
PPI, November (08:30): 0.5% expected, 0.4% prior
Core PPI, November (08:30): 0.2% expected, -0.6% prior
Retail Sales, November (08:30): 0.5% expected, 1.2% prior
Retail Sales ex-auto, November (08:30): 0.6% expected, 0.4% prior
Business Inventories, October (10:00): 1.1% expected, 0.9% prior
FOMC Rate Decision, December 14 (15:15): 0.25% expected, 0.25% prior

December 15 - Wednesday
MBA Mortgage Applications, 12/10 (07:00): -0.9% prior
CPI, November (08:30): 0.2% expected, 0.2% prior
Core CPI, November (08:30): 0.1% expected, 0.0% prior
Empire Manufacturing, December (08:30): 3.0 expected, -11.14 prior
Net Long-Term TIC Fl, October (09:00): $81.0B prior
Industrial Production, November (09:15): 0.3% expected, 0.0% prior
Capacity Utilization, November (09:15): 75.0% expected, 74.8% prior
NAHB Housing Market , December (10:00): 17 expected, 16 prior
Crude Inventories, 12/11 (10:30): -3.82M prior

December 16 - Thursday
Initial Claims, 12/11 (08:30): 425K expected, 421K prior
Continuing Claims, 12/05 (08:30): 4078K expected, 4086K prior
Housing Starts, November (08:30): 545K expected, 519K prior
Building Permits, November (08:30): 558K expected, 550K prior
Current Account Balance, Q3 (08:30): -$125.3B expected, -$123.3B prior
Philadelphia Fed, December (10:00): 12.5 expected, 22.5 prior

December 17 - Friday
Leading Indicators, November (10:00): 1.2% expected, 0.5% prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Stocks Have Reason to Sell But Turn Positive

SUMMARY:
- Stocks have reason to sell and the sellers take their shot, but they fall short and stocks turn positive.
- Renewed upside bias shows itself Friday as NASDAQ joins the other growth industries with a new 2010 closing high.
- Market finding solid leadership from many areas, but SP500 could use some financial help to get through the November high.
- Job creation 1/3 of expectations, unemployment rises to 9.8%. Should anyone be surprised? Economic data has improved, but it is not THAT strong.
- VIX drops to its October-November lows again as SP500 tries the November peak.
- Key test for SP500 after a solid bounce already: can it follow the growth indices?

Stocks overcome a weak jobs report, showing the renewed upside bias.

Two strong days on Wednesday and Thursday and in the Thursday night report I talked about possibly getting an opportunity in the morning to buy some positions a bit cheaper after the jobs report. I did not have any inside news on what the report, but I expected it might be a little bit disappointing because everyone was getting ginned up with the economic data. There has been a definite improvement in US economic data in manufacturing and retail. Same store sales came in very well for November, and people got a little overexcited with their expectations. Jobs lagged, and the economic data is simply not strong enough for a long enough time to generate the job growth people were hoping for.

Expectations were only 130K, so that was not any massive leap in jobs. In fact, it was lower than what was reported in October. When jobs came in at 39K versus the expectations of 130K, however, that was a bit hard for the market to swallow. The non-farm payrolls were bumped up for October to 172K from 151K but the actual numbers were disappointing at 1/3 of expectations. Significant to the headline factor, the unemployment rate ticked up to 9.8% from 9.6%. That is always a problem. More people entered the work force because of that optimism seen in the Michigan Sentiment report, consumer confidence, and retail sales. The unemployment rate went up because more entered the market than there were jobs to absorb. That was a disappointment as was the average workweek holding steady at 34.3 hours. Average hourly earnings were also unchanged versus a modest gain that was expected, and that was on top of a decent 0.3% gain in October. It was a letdown all the way around.

Looking at the SPY before the jobs report, there were nice gains in the futures. After the jobs report, we hit the bottom just before 8:00 o'clock central time. The market came back and performed fairly decently. It was down at the open, but on the upswing from the opening bell. Indeed, the market put in a jagged performance through lunch and early afternoon, and then it started higher. The market showed its renewed upside bias. Remember, it just went through a good correction and lateral consolidation over the prior three weeks. It showed a lot of buy support, particularly in the SP500, and it made a nice break to the upside. There was a good pullback, a nice lateral consolidation, and a strong upside break.

During this rise from August into early November, the market seemed to continue to find an upside bias. It disappeared during this correction, of course. That is what happens. Now that upside bias is returning. There was every reason for the market not to recover on Friday. The jobs report was highly anticipated to be better and turned out worse than expected, yet stocks rebounded as investors used the dip to buy back in. That tells us that buyers are still here. The upside bias asserted itself in the afternoon, and stocks rallied nicely to the close. There was a broad lateral move during the session into early afternoon, and then stocks caught a bid into the weekend.

I thought we would not have much to buy given the solid two upside days Wednesday and Thursday, but it turned out that we actually had the opportunity to buy some stocks on Friday. I was looking at GS, and it had rallied nicely the day before. I thought we could get a pullback after the jobs number. It did have problems early on in the session. It was higher premarket, but as the session opened it traded lower and we were able to pick it up at a lower price. Then the stock churned upside the rest of the day. Indeed, there were some great stocks and really classic patterns that we looked at on the Thursday report that performed very well on Friday. They were moving up nicely, and I was not going to second guess the pattern and second guess what the market was showing. We bought positions, and more than I anticipated we would. That is the way the market is.

We do not rule the market; the market tells us what to do. You just have to be smart enough to see what is happening and follow it. I was not going to say that I do not like the buy on Friday and stick to that plan even though stocks in great patterns were showing great action. That is the way you miss out on moves. Sometimes you get in a little early on a Friday. We could have a test on Monday -- after all, SP500 still has to deal with its November peak. The growth indices are moving very well, however. A lot of these stocks were growth-type stocks. You just do not want to turn a blind eye to good moves, and we did not. We stepped into those positions.

There were gains across the board. NASDAQ, +1%; SP500, +0.25%; Dow, +0.2%; SP600, +0.7%; SOX, +0.5%. The NASDAQ 100 stocks are not doing as well as the smaller cap NASDAQ stocks. That is no surprise right now because a lot of the large-cap techs led the initial move upside, and stocks such as AAPL and GOOG are struggling right now. It is no problem; other stocks are coming in and leading from other areas. Energy and industrial stocks are performing well, material stocks are starting to pick up the pace. Semiconductors are performing well, and of course retail is looking great -- particularly stocks like DECK. SP500 will need help from the financials, and they were not able to continue the rally on Friday. They looked good Thursday, and some of them are moving up, but SP500 will probably need some help if it is going to break through that November peak and continue following the growth areas. The financial stocks are coming to life. We will see if they can continue higher next week after taking a pause on Friday.


OTHER MARKETS

Dollar. The dollar took it on the chin on Friday. On Wednesday and Thursday, it pulled back after a strong seven-day rally. The pullback was normal, but the move Friday was not that normal. It was a hefty loss at 1.3%. Versus the Euro, the dollar completely tanked (1.3416 Euro versus 1.3224 Thursday). That does not tell the story, however. The dollar broke below 1.3 Euro early in the week, and what a reversal it has shown. It has almost given up the entire move higher on the second leg off of that low. Is it in jeopardy now? Yes and no. It is down to its 50 day EMA, and that is a support level. It is holding near that prior peak on the first run off the low, so it can find support here and continue to the upside. It is the size of these losses that are worrisome. These are big daily losses, and they ramped up on Friday. We will see if the dollar can hold.

Why did the dollar have trouble? Worries about the EU were somewhat mitigated this week given the Irish bailout, and that immediately firmed up the Euro and dropped the dollar. We had good economic data, and that would tend to firm up the dollar because the Fed would be less inclined to continue with as much Quantitative Easing. When the jobs report was a disappointment and the jobless claims on Thursday were disappointing, that helped weaken the dollar further to close out the week.

http://investmenthouse.com/ihmedia/dxy0.jpeg


Bonds. Bonds were rather flat on Friday after taking a thumping during the week (10 year 3.01% versus 3.00% Thursday). It was not long ago that the 10 year treasury was trading between 2.7 and 2.8%. It has been a fairly quick turn for the bond, but as the economic data improved, bond traders became concerned that the Fed would not need to use as much Quantitative Easing and buy as many debt instruments. Therefore, there is not as much demand for them, and bonds to sell while yields start to rise.

http://investmenthouse.com/ihmedia/tlt.jpeg


Gold. Gold had an excellent day and a strong week. It took the day off Wednesday and Thursday, but it had a big Tuesday and a big Friday ($1,408.00, +18.70). There was a lot of activity late in the day, and gold continued to run up. It was a very strong day for gold, and it was a strong finish on the day as well. In November, gold closed at a high of $1,410.10, and it hit a high of $1,424.00. It is not at that old high, but it posted a new closing high. I will not toot the horn too much because we are not there yet, but back in March I said gold would hit $1,500 this year. It does not look like it will make it, but it has had a heck of a run. It has been a heck of a run just in the last 5 months. It is strong, and now they are saying it will go to $2,000. I am not sure about that, but I do know $1,500 is still reachable and it will probably get there.

Gold is looking stronger, and it has taken out the October interim peak. It has taken out the closing high from November, and we will see if it can continue the momentum. It is definitely looking stronger because it is shooting down the resistance points in front of it.

http://investmenthouse.com/ihmedia/xgld.jpeg


Oil. Oil had an outstanding week, and it was up again on Friday. Lo and behold, it hit a new high -- closing and intraday -- over the November peak as it topped them quite easily ($89.22, +1.22). A strong session for oil, and as you can see, it has topped the April and May peaks. Looking at a weekly chart, it is not an all-time high, but it has cleared just about everything else outside of this sprint higher in 2008. This could be a bit of tarnish on the holiday season. The average gasoline price is already jumping higher. I believe it was quoted at almost $2.90 nationwide. Can you believe in the winter we have gasoline prices approaching and topping $3.00 a gallon? I even want to think about next summer, but we will be doing that not too long after the first of the year. They saying oil is rising because of the perceived recovery in the world economy -- that would mean the US joining the fight with India and China. If that is the case, that means more oil being used and more demand on the black gold.

http://investmenthouse.com/ihmedia/xoil.jpeg


INTERNALS

Volume. Volume declined 11% on NASDAQ to 1.75B shares, and it declined almost 19% on the NYSE to 907M. It was not a big volume day, and that is okay. The indices were either at new 2000 highs or bumping up against old resistance, and they were under some pressure. They were not doing too well on the day, so I do not mind seeing some lighter volume. There was no churning at these highs; they just drifted higher in the face of some bad news. I do not have an issue with that, and you probably should not either.

Breadth. Breadth was tame. 1.5:1 on NASDAQ and 1.8:1 advancers over decliners on the NYSE. Those small caps helping to push the NYSE breadth higher.


CHARTS

SP500. After spending two weeks down at that key level and bouncing up each day, SP500 finally made the break this week. Big moves on Wednesday and Thursday. On Friday it was not able to take out that November peak, but it has taken out the April peak and that is good news. It has not taken out the November peak yet, and MACD has not moved up. I cannot say there is a divergent top here yet, but I am watching that. You have to keep an eye on leadership as well, and I will talk about that soon. MACD is not going to rule the roost versus having good leadership and rotation in the market.

NASDAQ. NASDAQ broke through the April peak earlier in the week. On Friday it broke through to a new November closing high. That would be a new closing high for 2010 as well. Volume was not great. MACD is making a bit of a lower high here. It is something to watch, but it does not tell the entire story. One of the reasons we have trouble with MACD is that the momentum from the large cap stocks are not helping NASDAQ that much. On SP500, the financials are trying to help but are not doing a banner job.

SP600. SP600 was an excellent performer, up almost 0.7%. It, too, cleared its April and November peaks. Note that its November peak never did top April, so this was a significant move for the small caps. They have taken the bull by the horns and taken leadership by the horns as well.

SOX. SOX is doing well. It broke through its April and November peaks this week. It did so Thursday for the April peak, and it added to the gains on Friday after a gap lower. Growth is showing excellent strength. There is some good news. There was a higher high with MACD as it made its move, so it is looking somewhat positive, leading the rest of the market to the upside.


LEADERSHIP

Financial. GS dipped on the open. It still lost some ground on the day, but it was modest and we used that to move in. I still think it has a little ABCD pattern we can make some money off of. Some of the other financials contributed nicely. WFC posted another gain, almost 1% on the session. Hard to complain about the action. It is approaching the November peak, and it is going to have something to prove. That is important because SP500 is approaching that November peak and will need help from the financials. The financials have to deal with that themselves. That will make this a very important challenge for the market this coming week. JPM added to the gains as well, up 0.75% on the session. It is rolling back up in its rolling pattern. There is hope from the financials that they can help SP500 break through that November peak next week.

Industrials. Industrials were strong as well. They had a great week, and it was epitomized by CAT moving up for four strong sessions after a Monday doji at the 18 day EMA. Good volume on the initial move higher, and coasted up to close higher on the week. Very solid move. CMI closed a little bit down on the session Friday, but it had a great week. It gapped higher Wednesday, clear some resistance and came off of a little flag pattern. Very strong, nice action from many of the industrials.

Semiconductors. XLNX had a strong week, moving up to its summertime peak. It will have a little challenge because there is not a lot of volume here, but it is just moving nicely to the upside. NVLS is breaking to the upside, getting some open field to run in. It had a nice rally that broke through a resistance level, it came back and formed a flag pattern, and then it has broken higher and is working very nicely to the upside. NVDA had a strong move, continued higher and beat the odds. It has filled this gap from way back in May with a big base. It came back, nice handle, a gap to the upside, and it has the power this time. It is challenging and breaking through that gap point.

JASO has an ABCD pattern. It held right at a key support level, and note that gap point in the prior highs. It put in a good high-volume break to the upside on Friday, and it looks like it is pulling away from its D point. TSL may have a similar pattern, something of an ABCD. It is a little more wobbly than JASO, but I am going to watch TSL. It may be worth taking a deeper look.

Technology. The big techs continue to struggle. AAPL is at the top of its trading range. There is a bit of a divergent top, but it formed a big trading range as well during the summer and it broke higher off that. I am not going to get in a snit over that. GOOG is trying. It has gapped sharply lower this week. It tried to rebound late in the week, and it did, but it is more of a bear flag. More aggressive. You would try to play it down to the gap point, and we could do that. It closed at $573 and, the gap point is at $541. That gives a significant area to play to the downside. You could play a downside move. Then we would look to catch a rebound after the gap fill and see if we could ride it back up to the prior high. That would be a pair of good moves just taking what the mark gives you -- whether downside or upside.

Energy. Energy had a great week. HAL went straight up, showing excellent strength. PBR continued a great roll up higher in its trading range on the week. I like that and am letting it move. I like the fact that it broke through the 50 day EMA. It has a gap point here, but it is a gappy stock. You do not worry about gaps as much with a stock that gaps as much as PBR. It is making the steady move upside as I want it to. APC did not have a great session, but it came to life this week. It is primarily known as a gas producer, although it has a lot of oil production. It was good to see some of the gas companies starting to rally to end last week.

Retail. Every time it looks like DECK will have trouble, it continues higher. Here it gapped up to a hangman doji a week ago, and that did not stop it. It gapped up higher the next two sessions. Volume has taken off. It is getting ballistic -- you might start thinking, "This is getting frothy; is it a blow off top or not?" Then it tested on Thursday. It could have been coming back, but then on Friday there was more volume to the upside in a huge 6.5% move. Now the volume is big and the stock has run tremendously. You could start thinking it is a blow off top here, but I am going to let it run. If it gets to $100 on this move and volume crescendos even more, then we will definitely take some money off the table. You would be a fool not to. Right now, we will see how this runs. We all know that a stock and the market can run much further than anyone would rationally think it could. We will let it work until it tells us it is not going to work anymore. DECK was not the only one, although it was one of the more spectacular stocks. SKS did not have great same store sales, but it held in there and put in a flag after a great run to the upside. On Friday it broke through the topside of that flag. It continues to show strength even though you may not think it could do it. PNRA had an excellent week and an excellent month. It gapped higher on Wednesday and to the gains on Thursday.

Select areas are doing much better in retail. I will throw in ANF because it moved well on its same store sales the other day. Very nice, but some of them are getting crushed. They still have to perform, and ARO was not able to do that. ZUMZ was up 20% with its same store sales, topping expectations, but it got hit on the move. Now it is holding support, so we will see if it can hold and continue to the upside. There are some cracks in the armor. They have had big runs, no doubt. From $14.00 up to over $32.00 -- is a big run in any book. With a lot of good expectations already being built in for the Christmas season, some people are taking money out.

Summary. Overall, leadership is very solid. It would help if the financials came around, but money is pushed into the other areas. This week it went into materials, and we were already into some VMC. It went more into energy, and we have already gotten into several energy stocks as well. It is going into some of the housing stocks, although I am still not wild about them. Of course, a lot of the small caps are moving higher and the semiconductors are starting to break back to the upside after a consolidation. Money continues to flow into the market, and it continues to move around in the market. That is a healthy indication. That leads me to believe that, after this nice correction that the market showed these past three weeks, that it is going to give us a nice run toward the end of the year.

Will it make it to December 31st? I don't know. Who does? There is Quantitative Easing coming in, there are fund managers chasing performance to the year end, and that is producing a lot of good leaders with a lot of great patterns to play. When that happens, you tend to get continued runs to the upside. Now we have had a nice correction and consolidation, so the table is set to continue the move upside. Indeed, the market started eating at that table this week. Of course we were there, too. We took the market's invitation.


THE MARKET

MARKET SENTIMENT

VIX. The VIX had a tough week. It gapped lower Wednesday, falling Thursday, and again Friday with big chunks. It landed down near its October and November lows. There is a lot of speculation that that means the market is going to sell. It might and it might not. It was lower back in March and April of this year as well. What does this mean? When looking at volatility, many people say if it gets too low it means the market is set up to sell. That is really not the case. Looking at historical charts, volatility can be low for a long, long time and the market still rallies. After a long rally, you should worry when volatility rises as the market rises. Back in 2007 right before the financial crisis, the market was rising. Then volatility started to rise with the market in that last part of the run. That is not a good thing to see. Looking back to 2000, you can see volatility spiking, starting to rise as the market was ready to peak out. Not a great thing to see. Right now, we do not necessarily have that. The market is rising, yet volatility is falling.

What I see in the near term with these pictures is a small correlation set up. As the market or volatility goes up and down and they move inversely, you get a rise in volatility indicating a drop in the stock market price. Then when it falls, you see the market bounce back. When the volatility rises, the market falls. Does this look like much of a correlation? Right now, it is a modest one at best. Volatility was rising and the market was trending slightly lower, and then as volatility fell, the market spurted higher this week. That is the inverse relationship. It is down to levels that the market hit on other occasions in October and November. Now the question is if it will mean a pullback in the stock market. The SP500 is at a key level, but NASDAQ, SP600, and the SOX are all moving through their April and November peaks. They could come back to test in a pullback, and that would bounce volatility up somewhat. That would be fine, but it probably will not be anything major. It will probably be more like what we have seen right here.

VIX: 18.01; -1.38
VXN: 19.77; -1.65
VXO: 17.19; -1.72

Put/Call Ratio (CBOE): 0.79; +0.09


Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 55.4% versus 55.7%. A second week of fading even as the market continued its gains, falling from 56.2. Strong surge from 48.4% just a month back, the strongest move upside since May, indeed topping that level and getting closer to the 5 year high at 62.0. Moving toward the level considered bearish, i.e. where so many are in the market and believe it is going up that the ammunition to send it higher runs low. This is where you start to be careful and watch for breakdowns, but there is also a lot of liquidity being pushed into the market and that can continue the move despite excess bullishness. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 21.8% versus 21.6%. A modest gain, rebounding from 20.2%. Fell from 23.1% a month back. Pausing the slide after holding steady at 24.4% for two weeks. Down from 28.3% in September. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level, above which is considered bullish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +12.11 points (+0.47%) to close at 2591.46
Volume: 1.751B (-11.24%)

Up Volume: 1.191B (-299.292M)
Down Volume: 626.839M (+113.189M)

A/D and Hi/Lo: Advancers led 1.55 to 1
Previous Session: Advancers led 1.76 to 1

New Highs: 230 (+8)
New Lows: 27 (-9)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: +3.18 points (+0.26%) to close at 1224.71
NYSE Volume: 907.531M (-18.81%)

Up Volume: 631.905M (-319.301M)
Down Volume: 259.157M (+97.081M)

A/D and Hi/Lo: Advancers led 1.8 to 1
Previous Session: Advancers led 2.51 to 1

New Highs: 475 (+13)
New Lows: 60 (+2)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: +19.68 points (+0.17%) to close at 11382.09
Volume DJ30: 149M shares Friday versus 212M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

There is more economic data next week, but the bulk of the important data was released this week. There will be crude inventories, initial claims, and some wholesale inventories. Then there will be the import/export prices. It will be interesting to see just how much inflation we are importing or not. It will be good to see if Michigan Sentiment clicks up higher and continues its improvement. The consumer has been fairly ebullient of late and has been buying and helping send stock prices higher.

Maybe it is a chicken-or-the-egg scenario. Bernanke wanted people to feel wealthier, so he is pumped a lot of money into the economy. He knew it would not be used for economic activity, but that it would be put into the financial markets. Thus, the financial markets would rise and people's stocks would be worth more. Even though the prices for their houses are in the toilet, at least they would feel better because their stock portfolios are up. Maybe they would go out and spend some money. Good grief, was he correct? After all, look at those retail sales and same store sales. Hard to argue with that. There is a lot of money out there, and there is a lot of pent-up demand after a couple of really crappy Christmases. The stage is set, and stocks are making the most of it thus far.

I will keep looking around for leaders in the market. I will see if I can find more that are in good position or some new leaders trying to step up. Financials might prove interesting given that the SP500 is at its November peak and a lot of the financials have to break through that level as well. Maybe we will get some action from them, and that should really energize the large cap index and help it follow along with the growth indices. I did not think I would see many plays after the great run on Wednesday and Thursday, but looking around, there were several. There were a lot of those ABCD patterns that I talk about quite a bit. JASO had its ABCD pattern set up. All of a sudden there bunch of triangles forming. In the summertime, it was an inverted head and shoulders. Then the break out from that, and then a lot of stocks formed a triangle. JASO formed an ABCD pattern. There are all these consolidation patterns that formed. The triangles are breaking higher, and now the ABCD patterns are breaking higher. I will continue to look for new opportunities.

We have quite a few positions in the market, but that is the way it is. When the market runs and money is flowing into different sectors, different sectors perk up, set up, and break higher. You just have to play it when the market is there. In certain times of the year, fish run. Whether it is spawning season or the fall when they are fattening up, you need to be out there fishing for them when they are on the move. That is what you do with the market because there are going to be slow times ahead. There are these kinds of runs now into the end of the year. At some point after the first of the year, there will be a pullback; there always is.

We will keep playing this rally because that is what the market is giving us. Whatever I think about the future does not amount to a hill of beans. We will take what the market gives, watch what it shows us and tells us, and then we will respond accordingly. I will continue to look for good setups as money moves around the market into new areas. I will try to find some quality stocks in quality positions that we can take advantage of and make more money this year. We have had a great year, and it looks like this Christmas rally is going to turn a great year into an outstanding one. That means you need to stay on your toes, however. When it looks good and everyone thinks we will get the run to the end of the year, it may come up short. We may start checking up before Christmas. If that is the case, we will just bank some great gains.

Have an excellent weekend!



Support and Resistance

NASDAQ: Closed at 2591.46

Resistance:
2593 is the November 2010 high
2725 from July 2007 interim peak
2735 from late 2007 interim peak
2862 is the 2007 peak

Support:
2569 is the November gap up point through the April 2010 peak
2550 from May and June 2008 peaks
2540 is the gap up point from early November
2535.28 is the April 2010 intraday peak
2530 is the April 2010 closing peak
2518 is interim peak from April 2010
2511 is the lower range of the November gap up point
2482 is the recent October peak
The 50 day EMA at 2474
2460 is the November 2010 low.
2434 is the May interim peak and the 78% Fibonacci retracement of the April selloff.
2425 is an interim peak from May 2010
2382-2395 from 2008
2324-2370 is a range of resistance from early 2008
The 200 day SMA at 2342
2341 is the June 2010 peak
2320 to 2326.28 is the January 2010 high
2319 from the September 2008 peak
2310 is the August 2010 peak


S&P 500: Closed at 1224.71
Resistance:
1227 is the November 2010 peak
1313 from the August 2008 interim peak

Support:
1220 is the April 2010 peak
1185 from late September 2008
The 50 day EMA at 1180
1174 is the May 2010 high, 78% Fibonacci retracement of April peak
1173 is the November 2010 low
1170 is the prior March 2010 high
1156 is the Sept 2008 low
1151 is the January 2010 peak
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
The 200 day SM A at 1135
1129 to 1131 is the June and August 2010 peaks
1119 is the early December intraday high
1114 is the November 2009 peak
1106 is the September 2008 low
1101 is the October 2009 high and the recent May and June 2010 interim peaks
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak as well as several other peaks and valleys even in 2010.
1065 is the May flash crash intraday low.
1044 is the October 2008 intraday high AND the February 2010 low
1039 to 1040 are the May, June, and August 2010 lows


Dow: Closed at 11,382.09
Resistance:
11,452 is the November 2010 peak
11,734 from 11-98 peak

Support:
11,258 is the April 2010 peak
11,205 is the April closing high
11,100 from the 7-08 low
The 50 day EMA at 11,058
10,963 is the July 2008 low
10,920 is the recent May high
10,730 is the January 2010 peak
The 200 day SMA at 10,644
10,609 from the Mid-September 2008 interim low
10,594 is the June 2010 peak
10,496 is the November 2009 high
10,365 is the late September 2008 low
10,285 is the late December consolidation peak
10,260 from the May and June 2010 interim peaks are breaking
10,209 is recent August 2010 low
10,120 is the October 2009 peak
9938 is the August 2010 low
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low
9829 is the September 2008 closing high
9774 is the May 2010 intraday low


Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

December 07 - Tuesday
Consumer Credit, October (15:00): -$2.3B expected, $2.1B prior

December 08 - Wednesday
MBA Mortgage Applications, 12/03 (07:00): -16.5% prior
Crude Inventories, 12/04 (10:30): 1.07M prior

December 09 - Thursday
Initial Claims, 12/04 (08:30): 430K expected, 436K prior
Continuing Claims, 11/27 (08:30): 4250K expected, 4270K prior
Wholesale Inventories, October (10:00): 0.8% expected, 1.5% prior

December 10 - Friday
Trade Balance, October (08:30): -$44.4B expected, -$44.0B prior
Export Prices ex-ag., November (08:30): 0.7% prior
Import Prices ex-oil, November (08:30): 0.3% prior
Michigan Sentiment, December (09:55): 72.5 expected, 71.6 prior
Treasury Budget, November (14:00): -$134.0B expected, -$120.3B prior


December 02 - Thursday
Initial Claims, 11/27 (08:30): 436K actual versus 422K expected, 410K prior (revised from 407K)
Continuing Claims, 11/20 (08:30): 4270K actual versus 4200K expected, 4217K prior (revised from 4182K)
Pending Home Sales, October (10:00): 10.4% actual versus 0.0% expected, -1.8% prior

December 03 - Friday
Nonfarm Payrolls, November (08:30): 39K actual versus 130K expected, 172K prior (revised from 151K)
Nonfarm Private Payrolls, November (08:30): 50K actual versus 140K expected, 160K prior (revised from 159K)
Unemployment Rate, November (08:30): 9.8% actual versus 9.6% expected, 9.6% prior
Hourly Earnings, November (08:30): 0.0% actual versus 0.1% expected, 0.3% prior (revised from 0.2%)
Average Workweek, November (08:30): 34.3 actual versus 34.3 expected, 34.3 prior
Factory Orders, October (10:00): -0.9% actual versus -1.3% expected, 3.0% prior (revised from 2.1%)
ISM Services, November (10:00): 55.0 actual versus 54.5 expected, 54.3 prior

By: Jon Johnson, Editor
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Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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