Monday, December 19, 2011

Another Early Rally is Squandered

SUMMARY:

- Another early rally is squandered as SP500, NASDAQ fail to break back out of the Eurozone range.
- US data, European bonds look better on the week but a Fitch ratings move Friday afternoon overrides the positives.
- Longer term patterns still pointing toward danger in 2012.
- SP500, NASDAQ still need to break out of the EZ (Eurozone), but many stocks look ready to support a breakout near term.

A second early bounce runs out of bids.

It was yet another week that logged solid gains in U.S. economic data. Retail Sales were good enough. Business Inventories were solid. The Fed kept the rates steady and said it would continue to do so through mid 2013. But there was even better data than that. The Fed is the Fed, and it has had rates low for a long time. Jobless Claims fell to 366K. That is the best since 2008. The PPI was holding steady. Prices were not going anywhere. Empire Manufacturing tripled expectations. Capacity Utilization held in solid. The Philly Fed more than doubled expectations. We are seeing improvement in the economic data for the third straight month; indeed, extending over three months. We had some issues with earnings warnings. They have been a problem, particularly with semiconductors. We also had some really good news from the likes of FDX. It had a great earnings report. ADBE had a great earnings report as well. There are warnings and there is a lot of concern about 2012, but the data has been steadily improving.

The problem is that last week the U.S. stock indices did not have a great week. They started off weaker, unable to continue the prior Friday's bounce. They sold off through Wednesday. On Thursday and Friday they managed to put in a rebound, but it was nothing great. Why do I say that? Number one, it was of no size compared to the Monday-Wednesday selloff. More than that, SP500 and NASDAQ fell back into their August-October range known as the "eurozone," American style. I call it the eurozone because every timed the EU has real troubles, U.S. stocks fall into this August-October range. As noted, SP500 and NASDAQ fell into it. On Thursday and Friday they did try to break back out of that range, but it was an effort that bore no fruit. Both sessions SP500 tapped at the level to beat, but it was beaten by that level. In other words, it sold back each session, though it did post modest gains.

We had decent economic data. We are still improving, but the U.S. stock market faded. It was not a collapse. We are still in position to make a higher low and continue the move to the upside. It was just disappointing to see a breakout stall again just as a breakout stalled in late October and early November. We had two breakouts and now two stalls. What was the reason for the pullback? The economic data was not bad, and some of the earnings results were a bit disconcerting, but it is primarily Europe. I call this the eurozone for good reason. Every time there is real trouble out of Europe, U.S. stocks fall back into this range. Of course there are ongoing problems in the EU, but I am speaking of when they come to a boil or when a certain story hits and spooks investors. On Friday it looked as if the market may have been able to make a break to the upside. As on Thursday, the futures were up. Even though they were whittling back ahead of the open, stocks jumped higher as the market got underway. All of the indices were trading to the upside.

Bonds in Europe were trading better. There was a vote of confidence on the austerity measures for the country. The Italians were standing firm, and that helped the market. Bonds across the continent improved. They rallied, and that means yields fell. That is positive. The problem is yields have been raging higher because no one wants to lend the EU countries any money. That is bad you need money to operate. The banks have to be able to trade. Thus the dollar facilities and other aids that have been announced over the last three weeks.

That was not enough, however, to keep the market moving higher. Why? Fitch, a ratings company, joined Moody's and S&P in putting most of Europe (including France) on a negative credit watch. There have not been any downgrades, but negative credit watch is the first step in doing so. Now that the Big Three have put the continent on negative watch, it is just a matter of time before there are specific downgrades to debt. And, let's face it, there should be. If the U.S. is downgraded, then all of Europe should be downgraded. That just goes to show you it is a subjective, touchy-feely business that these guys are in. They should have downgraded Fannie Mae and Freddie Mac a long time before they actually did, but they missed it. They were asleep at the wheel. Same here. They have been asleep at the wheel, and now they are downgrading well after the fact. It is after everything is basically known.

It was that news that helped scuttle another rally attempt. The bids dried up and stocks sold into lunch. Not a banner day. Then they traded laterally into the close. It was not a complete disaster. It was not a collapse, but it was not a great session. The indices closed mixed.

SP500, +0.3%; NASDAQ, +0.56%; Dow, -0.02%; SP600, +0.83%; SOX, +0.81%

It was not carnage, but it was disappointing because the indices were unable to hold an early gain once again. They almost snatched defeat from the jaws of victory.


OTHER MARKETS

Dollar: 1.3032 versus 1.3020 euro. The dollar was down early. It was struggling because things looked better and Europe was stronger. By the close and Fitch's missive with respect to the credit worthiness of European sovereigns, the dollar gave back some of the loss. It strengthened versus the euro, but it never caught up on the day. There was still a slight loss on the dollar, but it was a huge week for the dollar as it broke to a new high for the year. It was moving across that September peak as well as topping the January peak. It pulled out just ahead of it and is now testing back. Of course you would expect it to test after such a nice run to the upside, breaking two key levels and now bumping up into the December 2010 peak. Great move by the dollar on the week, but it moved because of our friends in Europe.




Bonds: 1.85% versus 1.91% 10 year U.S. Treasury. Bonds enjoyed another rally overall. Money is fleeing Europe and coming to rest in U.S. Treasuries once again. Now we have the bonds challenging the mid-November peaks as well as the September and early-October peaks. Very strong move by debt instruments in the United States last week. Again that is due to issues with respect to Europe. With the U.S. data improving as it has been, in most situations you would expect to see bond yields rising and bonds themselves falling. Not the case given the extracurricular influences on the U.S. market.




Gold: 1,596.60, +21.40. Gold had a very difficult week. It sold off, broke lower on Monday, and it fell the entire week. It had a modest bounce on Friday after showing a Thursday doji. There is a bounce to the upside after a pretty good bloodletting downside this past week.




Oil: 94.10, +0.23. Oil struggled all week as well. It found a little bit of purchase on Friday, but that was barely any kind of move. After falling sharply, it is showing a doji and trying to bounce back to the upside. It rallied through 103, and it broke through resistance at 100. It went back and tested 96-95 support. It rebounded but never made it through that prior high. It has rolled over now and it is testing just below a key support level. Now it will have to look at 90-92 as next support. In other words, it is trading right above a range of support, but it is struggling.

China is having issues and having to lower collateral rates and reserve rates, and it probably will have to do a few other things to keep its bubble economy going. We have Europe with its issues not wanting to buy as much, obviously. It does not have the manufacturing base. Even with the U.S. manufacturing base back on the expansion now, it is not enough to soak up all the oil. Particularly when we are selling oil down to the Gulf of Mexico from Oklahoma now. We actually have plenty for a change for a little while.

All of indices and all of the markets were impacted last week not based upon U.S. data, but based upon European and Chinese data. No longer do U.S. moves dominate the moves of all commodities. It used to be when the U.S. sneezed, the entire world shuddered. Now the U.S. is improving, but it has hardly any impact on commodities. Interesting.




TECHNICAL SUMMARY

INTERNALS

The internals were rather lackluster.

Breadth. NASDAQ, +1.3:1; NYSE, +1.6:1.

Volume. NASDAQ, +43.6%; NYSE, +48%.

Volume exploded higher on expiration Friday. Do you read anything into that? Of course not. It was expiration Friday, so volume means very little. The more interesting feature about volume is that it has tailed off dramatically since 2007. It is even lower now because there is no proprietary trading allowed. We have implemented rules that have basically taken liquidity out of the market. They are driving money to other markets around the world versus the U.S. systems. Can you believe that? It is our insane effort to regulate every possible aspect of the markets and to regulate areas that were regulated before but were not properly enforced. Now we have regulations to cover the regulations that are not enforced by the regulators.

Why we do not just fire the regulators that are not enforcing the laws in place, I do not know. That is not the way our Congress and federal government works, so now we have extra regulations. It is amazing. If you talk to money managers, Wall Street people, small businesses, and lenders, they all say that everything is drying up. We would prefer to regulate and push business overseas than to enforce less-stringent regulations that would make sure the marketplace was safe and bring the money back home. We are so stupid in the U.S. So stupid. Our leaders to not understand markets, and they think regulation is the answer.

You must have minimum regulations; there is no doubt about that. You have to ensure that the market is fair. That is what the Constitution is there for; it is there to ensure a fair, safe playing field. But if we do not follow the Constitution and go off the paper, we get away from having a fair, level playing field. If we do not follow the minimum regulations that we passed (and that worked), then we are not going to get the results we want. The answer is not putting more regulations on top of regulations. That never works. You cannot regulate fairness into free markets. You set up the minimum to ensure equal access, and then you should just let people go. Some will win and some will lose.

Inadvertently, through the will to do good by the people, we have driven money away and are drying up our markets. We gave away our IPO markets. There are more IPOs on other stock exchanges in other parts of the world than in the U.S. We used to be THE place, and now we have driven all that business away. We have regulated it away. Enough of that. You understand that that is why volumes have been so low. People complain of low volumes, but they have literally operated to dry them up. But I digress.


CHARTS

SP500. No volume, light volume, big volume on Friday. It was all expiration, however, so we will not read anything into it. I do want to note that for two days the index bounced up against the top of the eurozone (1225-1235) and failed to move through. It has come back. The question is whether it will fail and fall back into the range or if it will make a break to the upside. It has not answered that. I will tell you this: I said the important aspect was the test of the top of the range after it broke into it. Thus far it is failing the test. Two days of tapping at the resistance and falling back. It has not rolled over, and that is always a positive. This week will tell the tale. I do not like what I see here, and I will talk about that more when discussing leadership.


NASDAQ. NASDAQ is the same type of action, although it never threatened a break. It came closer on Friday; Thursday there was nothing. NASDAQ gapped higher, but it put no scare into 2600. On Friday NASDAQ rallied up to 2585. Getting closer at 15 points away. It put a little shiver into 2600, but then it immediately turned tail and headed back down off of those levels. It is not threatening it seriously, and it also has not made the break. It has made an attempt at it, but it has not been able to push through. That is something we have to watch next week. Will it roll over or will it pick itself back up and try to make the break once more? We will see. Thus far, it is not wowing anyone.


DJ30. The Dow was down on the session, but it held the 50 day EMA nicely. Showed a nice doji. It is in excellent shape to move higher.


SP600. SP600 was up on the session. Definitely a day for the growth indices. It was up but also finished well off its high. It is holding right above its August peak. That is good. It needs to be one of the leaders to the upside. This week will let us know if it will do that, along with the Dow, or if it will throw in with SP500 and NASDAQ if they cannot make it out of the range.


SOX. Semiconductors were up, but they were off their peak as well. Indeed, they were tapping at the interim highs from August and fading back. The chips tried to make the move, but they were not providing any help for the rest of the market. We still have the same old problem. The Dow and SP600 are holding above their range, and the NASDAQ and SP500 are unable to make the break thus far. This next week will tell the tale.


LEADERSHIP

I will be talking about two broad categories tonight. There are the stocks in position to move higher near term, and then we have longer term patterns that do not look so good. I will not go into detail on specific sectors; I want to go by individual stocks and comment on how they look.

AAPL is still in a good pattern overall. It is setting up a triangle in its trading range. GOOG is also looking decent overall. It is at the top of its range, trying to make a break to the upside. There are a multitude of other stocks I have discussed that have formed rounded bottoms and are trying to move back up. ARAY is one of these. AVY is another I have talked about quite a bit. TASR has rallied nicely and is testing as we speak. LNN is in a trading range. It looks like it wants to bounce back to the upside. PEET is in a very nice uptrend.

In short, there are stocks that have moved up and are still moving nicely higher. They are set up to do more upside work. Then there are those that have sold back but are making nice rounded bottoms and want to make the break to the upside. LII has a nice rounded bottom, breaking to the upside. Those can provide solid, near term upside for the market. If SP500 and NASDAQ want to make the break higher, they can provide the motors to do it. That is great. Near term I have always said there is a possibility for a rally to the end of the year and into the first of the year. A little January effect action.

We have stocks with the patterns to be the drivers for that move; we just need something to trigger the move. Good economic data was unable to do it this week. It tried to, but Thursday and Friday it did not have enough juice to break NASDAQ and SP500 higher. Maybe they can do it on their own patterns and the accumulation the January effect in the smaller stocks toward the end of the year. After all, SP600 is trying to be one of the leading indices along with the Dow.

At the same time, there are other stocks that are kind of scary when looking down the road. Looking at a two day chart of BRCM, over the early part of 2010 through the present it set up a big head and shoulders. And it is breaking lower. LRCX just announced an acquisition. From early 2010 to present it has set up a big head and shoulders, and it is trying to break lower. And it is not just semiconductors. ADSK has set up a similar head and shoulders and wants to break lower from the looks of it. In energy, APA is set up a head and shoulders. There are others. KO is not as severe, but it is putting in a rounded top starting this year. Look how it made a higher high in August and September but MACD made a lower high. It is trying to roll over. It has a very lethargic looking top setting up.

From 2010 to present UTX is setting up something of a head and shoulders top. FCX is setting up the same pattern. We are playing it to the downside now. You can see that head and shoulders top with the lower MACD. It is just struggling. CTXS looks like it is setting up and having trouble, wanting to roll over with a head and shoulders of its own. BEAM has that head and shoulders as well. Looks like it wants to break to the downside. Industrial metals are having the same issue. BHP is setting up that head and shoulders as well.

Near term we see the possibility of a move higher. But looking out to 2012, based upon the patterns that have set up over the last 18-22 months, we see a bunch of head and shoulders in some key names. Not all names, but some key names. That is worrisome. It does not mean the market will roll over, but it means there could be some problems in 2012. This is one reason that 2012 is bugging me. I have concerns about economic data sustaining itself and about what Europe and China will do to the attempted rebound in the U.S. I am worried. They could really have an impact on us, and Bernanke is worried about this as well. I guess I am not in great company. There are also the patterns that are disconcerting when they mesh with what you hear about economics. Stock markets look down the road, 9, 12, 15 months. That puts us well into 2012. These patterns could start breaking down before then. If that is the case, we could potentially have a not-great 2012. At least toward the back half of it.

We can play some of these to the downside. These are big moves. We will begin taking a look at these because some of them are breaking lower. We have positions in some of them, and we will be looking to take positions in others as they continue to set up and break down. We will be looking longer term, of course, but these are longer term patterns. We will mix them in with our short term.


THE MARKET

SENTIMENT INDICATORS

VIX. Volatility has fallen back down to the late-October levels. It is also sitting on top of the mid-June levels. As the market sold, volatility bounced around a bit, but it mainly came down. That is the opposite of what usually happens. When the market sells, volatility tends to run higher. When the market is rallying, volatility dries up until it gets to the point where it needs to break and move back to the upside. What we see now is an interesting situation. The SP500 and NASDAQ are trying to break back up out of the eurozone. It would suggest that they might fail in that effort because volatility has fallen back down to the complacent levels hit before when the market sold.

The market did not plummet back in late October when volatility hit this level and started to bounce. It sold sharply for a couple of days, but it recovered after that. Then when the markets sold off sharply in November, volatility did not spike to the moon. It was up but it did not do much. Indeed, toward the end of the month it fell. Volatility is not actually working the way one would anticipate. Can I necessarily say that because it is back down to the late-October level that the market will fail in its attempt to break out? No. I can suggest that there might be some trouble and some issues, but that does not mean it will fail. Indeed, it could be read to say it will continue to the upside. I will put it to you this way: Volatility is not tracking true with the market. There are times when it does and times when it does not. When it does not, do not spend too much time on it. Obviously I have already spent too much time on it tonight.

VIX: 24.29; -0.82
VXN: 23.48; -1.31
VXO: 25.02; -0.43

Put/Call Ratio (CBOE): 1.15; -0.11


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: 45.3% versus 47.4% and 44.2% prior. Faded as the market stumbles around at the top of the Eurozone range. Just as it was picking up some steam to the upside it slips, but nothing major here. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 30.5% versus 29.5% versus 30.5%. Right back up as it appears 30% is going to be a support level. Makes sense given the market chop now. The index spent seven weeks over the 35% threshold considered a bullish indicator. 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: +14.32 points (+0.56%) to close at 2555.33
Volume: 2.487B (+43.67%)

Up Volume: 1.52B (+715.97M)
Down Volume: 1.1B (+240.05M)

A/D and Hi/Lo: Advancers led 1.28 to 1
Previous Session: Advancers led 1.36 to 1

New Highs: 37 (+15)
New Lows: 120 (+6)


SP500/NYSE

Stats: +3.91 points (+0.32%) to close at 1219.66
NYSE Volume: 1.139B (+48.31%)

Up Volume: 3.16B (+790M)
Down Volume: 1.69B (+280M)

A/D and Hi/Lo: Advancers led 1.62 to 1
Previous Session: Advancers led 1.71 to 1

New Highs: 86 (+26)
New Lows: 55 (-5)


DJ30

Stats: -2.42 points (-0.02%) to close at 11866.39
Volume DJ30: 389M shares Friday versus 137M shares Thursday.


MONDAY

Next week there is another calendar full of economic data. It begins with Housing Starts on Tuesday. That is when the serious news hits. Existing Home Sales are on Wednesday. On Thursday you have Jobless Claims and then the third estimate of Q3 GDP. Michigan Sentiment is also on Thursday along with Leading Economic Indicators. Friday brings Durable Goods, Personal Income and Spending, and New Home Sales. Plenty to chew on next week as SP500 and the NASDAQ try to break out of their eurozone ranges.

As I discussed earlier, all eyes will be on the SP500 large caps and the biggest NASDAQ stocks as they bump their heads at the top of the eurozone trading range. Will they make the break or not? I still believe there are enough short term, bullish patterns out there ready to move higher. I believe they can indeed drive those indices up out of this range for now. I am not saying they will break out to a new high. They could drive them out. We have put in one higher low. We could put in another higher low, make the break, and come up and test these April into July highs. I do not think we will break those. I think that will be the zenith on the move. We may break them. We may move through them on a short term basis, but I believe that would be the reversal signal.

This is just my analysis; it does not mean it will happen. But this is what I have seen in 25 years of looking at the stock market. This is the kind of thing that happens. We have the economics, we have the patterns near term and long term, and we have problems in the rest of the world. I have seen it happen in different parts here and there, but now they are all put together at once. These are truly historic times. It kind of sucks to be here, but it is interesting at the same time. When I ponder these things and get concerned, I am often reminded of what Gandalf the Grey said in The Lord of the Rings. Everyone living through times such as these sometimes wishes it was not their burden. But it also makes the decisions pretty simple. It is not worrying about whether you are here or not. You ARE here. It is about what you decide to do with the time you are given. That is one very eloquent way of saying, "When life gives you lemons, make lemonade." Or in my neck of the woods, "Take what the markets give you."

We get our edge by making money off the market whether it goes up or down. We gain the edge so we do not have to care. We ultimately do care, but you understand why I say I cannot care when I am trading the market. We just look for what the market will give us. Short term it looks like it will give us some upside plays. After that, it looks like it will give us some long downside plays, punctuated by sharp moves to the upside, of course. That is the way it always is. Underlying all of that, we just look at what the market is doing. Look at the plays. Do we have a good probability of making money on this play? Do we have at least 3:1 odds in our favor of going in the direction we are looking at? If we can get 3:1 or better and we are playing smart with the direction of the market overall, we end up winning and making a lot of money.

Just be smart and do not get too caught up with all the noise and all the predictions about what will happen. It is the end of the year, and there will be a lot of predictions. Do not get too caught up in that. Look at what the market is doing now and overlay that with what is setting up down the road. Just like what I went through tonight. If you do that, you are less likely to be caught by surprise and get that one in your ear, as Shoeless Joe Jackson admonished the young Moonlight Graham in Field of Dreams. If we do that, we will not get caught behind the trend, or we will not get to the point where we are getting killed. We can stay ahead. We can make great money just allocating common-sense money to each play and then making sure each play has the requisite risk/reward. If we do that and keep our eye on the horizon, we will be in great shape no matter what the market and the economy throws at us.

Have a great weekend. Do some more Christmas shopping. Maybe do some more hunting; it is still hunting season after all. Drink some great wine or whatever it is you like to do. Whatever your beliefs are, try to enjoy the season. Enjoy the benefits of the hard work we have put in this year. It has been a difficult year from an up and down standpoint, but it has been a very profitable year as well. Enjoy it. Smell some roses and spend some of that money; maybe it will help the economy. I will see you on Monday.

Have a great weekend!



Support and Resistance

NASDAQ: Closed at 2555.33

Resistance:
2555 is the mid-August 2011 peak
2572 is the November 2-11 gap down point
2580 is the November 2010 closing high
2593 is the November intraday high
The 50 day EMA at 2596
2599 is the June 2011 low
2603 is the March 2011 intraday low (post-Japan low)
2612 is the late August 2011 peak
2643 is the September 2011 high
2645-2650ish from December 2010 consolidation
The 200 day SMA at 2665
2676 is the January 2010 low
2686 is the January 2011 closing low
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2754 is the recent October 2011 high
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2546 is the early September 2011 gap down point
2535 is the November island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows


S&P 500: Closed at 1219.66
Resistance:
1220 is the April 2010 peak
The 50 day EMA at 1224
1227 is the November 2010 peak
1231 is the late August 2011 peak
1235 is the mid-December 2010 consolidation low
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1258 is June 2011 intraday low
The 200 day SMA at 1261
1275 is the January 2010 low, early January 2011 peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low


Dow: Closed at 11,866.39
Resistance:
11,867 from the August 2009 high and peak on that bounce in the selling.
11,893 from March 2008 closing low
The June low at 11,897 (closing)
The 200 day SMA at 11,939
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,284 is the October 2011 peak
12,391 is the February 2011 peak
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
The 50 day EMA at 11,792
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low


Economic Calendar

December 12 - Monday
Treasury Budget, November (14:00): -$137.3 actual versus -$139.5B expected, -$150.4B prior

December 13 - Tuesday
Retail Sales, November (8:30): 0.2% actual versus 0.6% expected, 0.6% prior (revised from 0.5%)
Retail Sales ex-auto, November (8:30): 0.2% actual versus 0.5% expected, 0.6% prior
Business Inventories, October (10:00): 0.8% actual versus 0.9% expected, 0.0% prior
FOMC Rate Decision, December (14:15): 0.25% actual versus 0.25% expected, 0.25% prior

December 14 - Wednesday
MBA Mortgage Index, 12/10 (7:00): 4.1% actual versus 12.8% prior
Export Prices ex-ag., November (8:30): -0.1% actual versus -1.5% prior
Import Prices, November (8:30): 0.7%
Import Prices ex-oil, November (8:30): -0.2% actual versus -0.2% prior
Crude Inventories, 12/10 (10:30): -1.932M actual versus 1.336M prior

December 15 - Thursday
Initial Claims, 12/10 (8:30): 366K actual versus 390K expected, 385K prior (revised from 381K)
Continuing Claims, 12/03 (8:30): 3603K actual versus 3650K expected, 3599K prior (revised from 3583K)
PPI, November (8:30): 0.3% actual versus 0.1% expected, -0.3% prior
Core PPI, November (8:30): 0.1% actual versus 0.1% expected, 0.0% prior
Empire Manufacturing, December (8:30): 9.53 actual versus 3.0 expected, 0.61 prior
Current Account Balance, Q3 (8:30): -$110.3B actual versus -$110.0B expected, -$118.0B prior
Net Long-Term TIC Fl, October (9:00): $4.8B actual versus $68.3B prior (revised from $68.6B)
Industrial Production, November (9:15): -0.2% actual versus 0.2% expected, 0.7% prior
Capacity Utilization, November (9:15): 77.8% actual versus 77.8% expected, 78.0% prior (revised from 77.8%)
Philadelphia Fed, December (10:00): 10.3 actual versus 4.5 expected, 3.60 prior

December 16 - Friday
CPI, November (8:30): 0.0% actual versus 0.1% expected, -0.1% prior
Core CPI, November (8:30): 0.2% actual versus 0.1% expected, 0.1% prior

December 19 - Monday
NAHB Housing Market Index, December (10:00): 19 expected, 20 prior

December 20 - Tuesday
Housing Starts, November (8:30): 627K expected, 628K prior
Building Permits, November (8:30): 633K expected, 653K prior

December 21 - Wednesday
MBA Mortgage Index, 12/17 (7:00): 4.1% prior
Existing Home Sales, November (10:00): 5.03M expected, 4.97M prior
Crude Inventories, 12/17 (10:30): -1.932M prior

December 22 - Thursday
Initial Claims, 12/17 (8:30): 380K expected, 366K prior
Continuing Claims, 12/10 (8:30): 3650K expected, 3603K prior
GDP - Third Estimate, Q3 (8:30): 2.0% expected, 2.0% prior
GDP Deflator - Q3 (8:30): 2.5% expected, 2.5% prior
Michigan Sentiment - Final, December (9:55): 68.0 expected, 67.7 prior
Leading Indicators, November (10:00): 0.3% expected, 0.9% prior
FHFA Housing Price Index, October (10:00): -0.1% prior

December 23 - Friday
Durable Orders, November (8:30): 2.0% expected, -0.5% prior (revised from -0.7%)
Durable Goods Orders, December (8:30): 0.3% expected, 1.1% prior (revised from 0.7%)
Personal Income, November (8:30): 0.2% expected, 0.4% prior
Personal Spending, November (8:30): 0.3% expected, 0.1% prior
PCE Prices - Core, November (8:30): 0.1% expected, 0.1% prior
New Home Sales, November (10:00): 313K expected, 307K prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

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

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Sunday, December 11, 2011

A String of Earnings Warnings is Worrisome

SUMMARY:

- Doesn't take much of a European deal to satisfy investors and traders.
- A string of earnings warnings is worrisome, but not for stocks, at least not yet.
- China industrial output slows further.
- Michigan Sentiment approaching 70.
- Moody's cuts the big French banks.
- Despite the negatives, Europe trumps and stocks rally nicely, pushing the indices up off an important support level.
- The bid returned on Friday. If it is still there Monday the prospects for a further upside push firm considerably

Apparently any deal was good enough on Friday.

Apparently any deal out of Europe was good enough for the U.S. stock market on Friday. Considering that there were rumors from Japan that Germany would veto any kind of deal, the fact that the EU agreed to anything (even if it did just kick the can down the road further) meant a sigh of relief was heard around the world. It was enough to bounce U.S. futures to the upside, and it was enough to send European stocks higher as well.

It really was not that auspicious of a deal. I dare say it was not powerful no offense to the French official who predicted that a powerful deal would be struck. It was an agreement among all of the EU members except the UK. They simply will not go along with anything the EU wants to do. It was an agreement for tighter fiscal controls in order to prevent future debt increases. Think about that. "Future debt increases"? Is that not the same thing we do over here with our budget? That grand super committee was supposed to cut $1.2T, but it could not agree how to do it. They could not agree on what to cut because they were cutting expenditures that had not yet been made. In other words, these were expenditures that would possibly be made in the future. That is not cutting. Cutting is dealing with what you already have earmarked to spend. It means the money is going out the door. It is not cutting a potential expenditure in the future. But that did not deter Europe, and they were able to agree to do just that. This is supposed to provide some kind of fiscal restraint well down the road.

There was another leg to the agreement (with only two legs, maybe it will fall over). It was what they call the ESM. It is another emergency fund. It will be 500B available in July of 2012. You might ask why they would take so long; it is eight months away. But this ESM was already planned, and it was supposed to be put in place in July 2013. They advanced it an entire year, but that still leaves it in July. Obviously, the feeling in Europe is that this is really not a major crisis. If they do feel that, then they simply do not want to address it. In 2013 they were going to put together another fund? There may not be anything left by July 2012, much less in 2013.

It is all rather comical. But what is even more comical is that U.S. markets found it palatable and rallied on the news. Futures started out high and they kept moving higher. This despite some pretty worrisome data from U.S. companies. I am not talking about data that the government is compiling; I am talking about actual information and earnings projections coming from companies. There was a string of warnings. ALTR, TXN, and LSCC in computer chips, TOY in autos and DD chemicals. All kinds of plastics, chemicals, and the stuff that goes into consumer goods. DD specifically cited a consumer electronics slowdown as one area that caused it to reduce its outlook for 2012. We have already had GLW say that it was cutting back on its glass production for flat screen TVs because demand was way off. Now we add to it a series of semiconductors and then more stoic Dow-type stocks such as DD.

That gets a bit worrisome. It is just not something in an obscure area of the chips sector. It is TOY, DD and others. The chips that these companies make are not the kinds of chips that go into phones or tablets, but that does not mean they are worthless. They find their way into auto parts, industrial components, and consumer goods. This is part of what I talked about on Thursday night. They are all over the market, representative of the entire market and the economy. These chips go into everything. If they see demand slowing it is worrisome.

But not to fear. It was not hurting the market on Friday. China was reporting that its industrial output hit its lowest level in two years, but that was not going to matter. Did it matter that Moody's cut the largest banks in France such as Societe Generale and Credit Agricole? No. Stocks were going to rally because there was a deal. It was a "kick the can down the road" deal, but that works for stocks in the near term. If they feel like the banks, financial institutions, and large companies will be able to operate under the facilities that are put in place, then stocks are going to perform well. Maybe they believe that the bid is there again. Maybe they believe that Quantitative Easing European style will be coming. It might or it might not. The meeting was very opaque with respect to giving guidance on further liquidity measures.

Again, that did not matter for stocks. They started to the upside. They tested early and then it was a steady rally for the rest of the day, closing out near the session highs. Stocks did move flat for the last hour, but they did not give up their gains.

SP500, +1.7%; NASDAQ, +1.94%; Dow, +1.55%; SP600, +3.24%; SOX, +1.22%.

Not what you would typically expect from the SOX, but it had to overcome the morning dips, turn back up, and then rally to the upside after stocks such as INTC and TXN helped it to the downside.

It was not just the European deal that was considered good news. There was some economic data out in the U.S. dealing with the Michigan Sentiment reading for December. It was the preliminary reading, but it came in quite nicely at 67.7 when 65.1 was expected. It was 64.1 back in November. It is approaching 70, and that is getting to be a decent level. I say "decent," but it beats the heck out of the 50's and low 60's. We have continued improvement in the economic data as reported in the U.S. While that is very hopeful, again, you should counterbalance that with the problems we are hearing from some well-known big names in the U.S. economy. I am not talking about just one sector. I am talking about GLW, DD, and several semiconductors. That is a wide range, and it represents a wide range of goods in the U.S.


OTHER MARKETS

The other markets were up and down, but it was not exactly with you would expect.

Dollar: 1.3373 versus 1.3336 euro. The DXYO did rise against the euro, but it was higher against other currencies around the world, so the DXYO itself rose. The dollar continues to look good in this cup with handle pattern that formed off the initial rally from August.

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


Bonds: 2.06% versus 1.98% 10 year U.S. Treasury. Bonds sold as you would expect. That thumped the 10 year back down to the 50 day EMA. It is also in a cup with handle right now, trying to hold at the 50 day EMA and to break higher off of that level. Bonds have been range trading over the past week. They are back and forth almost even amounts every day. They have been in a range since the rally flattened out that ended in September. It moved back and forth, and it is carving out this pattern. We will see if there is a break to the upside. What would break it to the upside? Bad news in Europe or bad news in the U.S. economy. People would run to safety, and that would push bonds higher. A cup with handle is a bullish pattern. It suggests that bonds are building in a worry about the future.

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


Gold: 1,717.40, -4.00. Gold was down on the session modestly, basically banging around in its triangle. It tried to rally on Wednesday and gave it up Thursday. Friday it held the line and bounced modestly. It is right at the point of its triangle. It is time for it to make a break, and we should see a definitive move at some point in this coming week.

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


Oil: 99.41, +1.07. Oil closed up on the session. Volatile week for oil as well. Earlier in the week it was very flat. On Thursday it sold hard, and then Friday it managed a bounce. Still over the 95 level that is support for it. It is between that and the 103 level that is acting as resistance. We have maybe a double top in here, but I would not write oil off at this point. I would not say it is rolling over. It is just testing right now.

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


TECHNICAL SUMMARY

INTERNALS

The internals were lackluster in one respect but quite strong in the other.

Breadth. +4.5:1, NASDAQ; +6:1, NYSE. Breadth was very sharply upside.

Volume. -10% NASDAQ, 1.63B; -13% NYSE, 746M. Volume was anemic. Both NASDAQ and NYSE were below average.


CHARTS

SP500. SP500 had faded back to the August-October range. It made a higher low in late November, rallied, and could not make a higher high. It rolled back over, but it has held that prior range for now. It is now in position to try to take on the June low and late-October peak again. Very good to see the bounce. Things were dicey and they still are somewhat. It is not out of the woods. That is why I want to see if the bid returns on Monday. SP500 did itself a big favor on Friday with this solid rebound off of that prior trading range.


NASDAQ. NASDAQ is very similar. It bounced off the 50 day EMA and also bounced off of the August and September peaks. That put it back in the very choppy range spanning October and November. It is doing what it has to do, and that is to hold support and make a new bounce. On the low it held at that June low, and now it is trying to put in a bounce. Again, Monday will tell much more of the story. It will tell whether the bid returns next week that, again, showed up on Friday after it left the building on Thursday with worries about what the ECB Chairman Draghi was saying.


SP600. SP600 had a very nice move. It bounced off of its August peaks and the 50 day EMA, moving back up close to that late-October peak. Excellent action by the small caps. They have to take out the 200 day EMA and that late-October peak. They look very solid to make a run at that.


DJ30. DJ30 has been the leading index. It held the 200 day EMA and bounced nicely. It has not taken out the late-October peak, but it is looking like it wants to.


SOX. SOX is very important. It was up +1.22%. It was not the best mover of the day. It gapped lower. Recall that it had some bad news from the earnings warnings, but it managed to reverse and close positive just above that trendline. While it was not a stellar move, it keeps itself in the game to move higher. We will see if it can. It has been struggling. As I said on Thursday night, the chips are a leading indicator. Whether they lead to the downside or to the upside, we have to watch that because they are in everything we buy, see, do, and use right now. They play an important role. If they move up, the odds of the market success on a rally improve dramatically.


LEADERSHIP

Semiconductors. It was not a total implosion. Semiconductors were able to come back off the lows. ALTR gapped lower on its warning, but it formed decently. It managed to close out with a gain. LSCC gapped lower and was unable to recover. INTC gapped lower but managed to bounce off of the 20 day EMA. LRCX had a nice test and rebound. KLAC held the 10 day EMA and bounced. SNDK looks nice, holding at the 20 day EMA and looking ready for a bounce to the upside. There are some semiconductors performing just fine. ONNN put in a nice rounded bottom.

Technology. Some tech stocks were performing well. GOOG made a break upside after a nice test of the move through the July peak. It is performing very well. NTGR posted a nice gain. Solid break to the upside on Friday, almost 5.5% on the move.

Industrial. IR is setting up a nice cup with handle base. UTX put in a base, bounced, and it is trying to kick up its heels a bit. AVY has put in a nice consolidation. It is starting to move higher again with a good upside break on Friday. Industrials do not look bad. Seems like a lot of areas are picking up a bit and trying to move higher.

Retail. I have been worried about retail, and we have put some downside plays in the retail sector. Some of them are recovering and some are not. SCSS is starting to move back to the upside. No real volume on Friday, but it is starting to make an upside break. Some of the small business suppliers and office supply companies are looking better. ODP has a rounded bottom and MACD is moving up. It is trying to put in some kind of move. SWSM had a good blast to the upside. RL is trying to make a higher low. A little ABCD pattern, and it bounced off of it. Trying to test that first move and continue to the upside.

We have stocks that are obviously in better shape now after a bit of a pullback on Thursday and the lateral consolidation leading into Thursday. That leaves these stocks in pretty decent position to make bounces to the upside. Indeed, we were picking up some on Friday such as OXM. It is an apparel company making a break to the upside.

They were moving and were in position to move. I suspect that they will try to do that again because we have a lot of good patterns set up. Again, if we get the bid early next week, then this rally could really get some feet under it.


THE MARKET

SENTIMENT INDICATORS

VIX. The VIX dropped considerably on Friday. A straight-line, sharp drop could be suggestive that the market is going to try to rally some. It has been trading in a range. It has had a couple of sharp declines. This would be the third, and this time it may stick. Although it is still above the 200 day EMA. This one was a sharp decline, and it did not bounce. We will see if it rebounds next week. The big difference would be whether the European bids returns or not. It was there on Friday. If it shows up again on Monday, things could look positive for a continued rally.

VIX: 26.38; -4.21
VXN: 25.99; -4.01
VXO: 26.11; -4.88

Put/Call Ratio (CBOE): 1.2; +0.24


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: 47.4% versus 44.2%. Bounced right back up to 47.4%. Interesting pattern, bouncing from 44.2% to 47.4%. Picking up steam to the upside. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 29.5% versus 30.5%. Continuing its decline from above 35%. The index did spend seven weeks over the 35% threshold considered a bullish indicator. 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.


CHARTS

NASDAQ

Stats: +50.47 points (+1.94%) to close at 2646.85
Volume: 1.63B (-9.75%)

Up Volume: 1.47B (+1.229B)
Down Volume: 186.72M (-1.403B)

A/D and Hi/Lo: Advancers led 4.49 to 1
Previous Session: Decliners led 5.99 to 1

New Highs: 45 (+28)
New Lows: 49 (-23)


SP500/NYSE

Stats: +20.84 points (+1.69%) to close at 1255.19
NYSE Volume: 746M (-13.05%)

Up Volume: 3.38B (+3.252B)
Down Volume: 368.5M (-3.742B)

A/D and Hi/Lo: Advancers led 5.93 to 1
Previous Session: Decliners led 6.38 to 1

New Highs: 91 (-4)
New Lows: 17 (-2)


DJ30

Stats: +186.56 points (+1.55%) to close at 12184.26
Volume DJ30: 154M shares Friday versus 166M shares Thursday.


MONDAY

There is a big week ahead, and it will be important for a lot of economic data. We have Retail Sales on Tuesday. That will be very important. By the way, the FOMC meets on Tuesday. No one is expecting much from them. Wow, if Quantitative Easing came it would be crazy. But it will not. The economic data is improving enough to thwart any desires Ben Bernanke might have to do that.

On Thursday there is a lot of information. PPI, Initial Jobless Claims, Empire Manufacturing, Production and Capacity, and the Philly Fed. A huge day followed by the CPI on Friday. We have a lot of data, and it is also coming up to earnings season. We are already seeing warnings, and we may see more warnings coming. That could be the counterbalance to the European the deal that was struck on Friday. Maybe investors will wake up and say that the European deal has no clothes again. Maybe we will have trouble and struggle back down into that range as we have every time the European crisis has been perceived as a crisis again by U.S. investors and traders.

We are trying to get a bid. It is trying to buck up as it did on Friday. Looks good. We will see if it can do it. It is not out of the woods by any stretch. It bounced where it had to; all of the indices did, but they have not put in a breakaway move off of this level. That is why I think we have to see that bid come back in early next week in order to confirm Friday was not just a fluke a relief bounce on a deal that really was not that great of a deal. It REALLY was not that great of a deal. It was not a powerful deal, but it may be enough with the U.S. data to keep U.S. stocks moving higher.

Now I have to throw in the added wild card of warnings. That is something that has to be watched. It is also expiration. We have a triple witch coming on Friday. That could add to a bit of volatility as the market tries to move off of this support level. There are many stocks in decent position to move higher. Some are extended, pulling back. Others have formed rounded bottoms and are ready to move higher. Others are kind of in no man's land. They have started a move, and they are in between. They are somewhere in their range. You do not want to buy them because they do not have far to go before they hit resistance. Others are right up near resistance. While they may look enticing, some of them are not that great because they have overhead at hand. Others who have a similar pattern do not have that same overhead. That is where we come in, picking those that have less overhead resistance to move through. Those are the ones that can make the quick, solid moves for you in a rally that resumes and may be moving up to the end of the year.

We will focus on those stocks we think can make us good trades to the upside during this period. That does not mean we will try to get a dollar or two on a $50 stock. We will still have plays with very reasonable rewards to them, but that is just part of having a good risk/reward in your plays overall. You want the probabilities in your favor. Then you tend to win even if you get some clinkers. And you invariably get some clinkers that just do not go the way you want them to. It is a game of probabilities in the market. Probabilities of what stocks will do and then allocating your money accordingly. It is not about putting all of your money at risk on just one or two plays. Being smart about how you put your funds to work is just as important as getting good plays.

We have to see if the market bid returns gratis Europe to start the week. There are stocks in position to move higher that can carry this rally forward even as some stocks are extended. We need a healthy market to have waves of stocks that move higher. Thus we look at stocks such as AVY that have put in a good bottom but have not rallied sharply yet. These stocks can be the next wave to the upside. They are ready. It is just whether or not investors are ready to push the market higher overall. I may sound like a broken record, but that is what we are going to find out this coming week. We will see whether the European bid that showed up again on Friday although it may just have been a relief move can stick and push stocks higher and thus make their moves stick as well.

We will find some good plays, and we will be ready. If the market wants to run, we will take it. If it was a head fake on Friday, we have got some downside that we already purchased so we can take advantage of it. It is still a range trade right now. It is frustrating and can make you kind of crazy, but you can see overall improvement. Higher low, coming back. If the bid comes in, the indices are in good shape to bounce off of that August-October peak and continue on toward the April, June, and July peaks. That may be all we get out of the rally, but that would be a nice rally indeed.

I will see you on Monday. Have a great weekend!


Support and Resistance

NASDAQ: Closed at 2646.85

Resistance:
2645-2650ish from December 2010 consolidation
The 200 day SMA at 2671
2676 is the January 2010 low
2686 is the January 2011 closing low
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2754 is the recent October 2011 high
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
The 50 day EMA at 2602
2599 is the June 2011 low
2593 is the November intraday high
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November gap down point
2532 is the early August gap down point
2512 is last weewynnk's gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows


S&P 500: Closed at 1255.19
Resistance:
1255 is the late December 2010 consolidation range
1258 is June 2011 intraday low
The 200 day SMA at 1263
1275 is the January 2010 low, early January 2011 peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
The 50 day EMA at 1224
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low


Dow: Closed at 12,184.26
Resistance:
12,284 is the October 2011 peak
12,391 is the February 2011 peak
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 11,945
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
The 50 day EMA at 11,767
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low


Economic Calendar

December 5 - Monday
Factory Orders, October (10:00): -0.4% actual versus -0.4% expected, -0.1% prior (revised from 0.3%)
ISM Services, November (10:00): 52.0 actual versus 53.4 expected, 52.9 prior

December 7 - Wednesday
MBA Mortgage Index, 12/03 (7:00): 12.8% actual versus -11.7% prior
Crude Inventories, 12/03 (10:30): 1.336M actual versus 3.932M prior
Consumer Credit, October (15:00): $7.6B actual versus $7.0B expected, $6.9B prior (revised from $7.4B)

December 8 - Thursday
Initial Claims, 12/03 (8:30): 381K actual versus 395K expected, 404K prior (revised from 402K)
Continuing Claims, 11/26 (8:30): 3583K actual versus 3700K expected, 3757K prior (revised from 3740K)
Wholesale Inventories, October (10:00): 1.6% actual versus 0.2% expected, 0.0% prior (revised from -0.1%)

December 9 - Friday
Trade Balance, October (8:30): -$43.5B actual versus -$44.0B expected, -$44.2B prior (revised from -$43.1B)
Michigan Sentiment, Preliminary December (9:55): 67.7 actual versus 65.1 expected, 64.1 prior


December 12 - Monday
Treasury Budget, November (14:00): -$139.5B expected, -$150.4B prior

December 13 - Tuesday
Retail Sales, November (8:30): 0.6% expected, 0.5% prior
Retail Sales ex-auto, November (8:30): 0.5% expected, 0.6% prior
Business Inventories, October (10:00): 0.9% expected, 0.0% prior
FOMC Rate Decision, December (14:15): 0.25% expected, 0.25% prior

December 14 - Wednesday
MBA Mortgage Index, 12/10 (7:00): 12.8% prior
Export Prices ex-ag., November (8:30): -1.5% prior
Import Prices ex-oil, November (8:30): -0.2% prior
Crude Inventories, 12/10 (10:30): 1.336M prior

December 15 - Thursday
Initial Claims, 12/10 (8:30): 390K expected, 381K prior
Continuing Claims, 12/03 (8:30): 3625K expected, 3583K prior
PPI, November (8:30): 0.2% expected, -0.3% prior
Core PPI, November (8:30): 0.1% expected, 0.0% prior
Empire Manufacturing, December (8:30): 3.0 expected, 0.61 prior
Current Account Balance, Q3 (8:30): -$110.0B expected, -$118.0B prior
Net Long-Term TIC Fl, October (9:00): $68.6B prior
Industrial Production, November (9:15): 0.2% expected, 0.7% prior
Capacity Utilization, November (9:15): 77.8% expected, 77.8% prior
Philadelphia Fed, December (10:00): 4.3 expected, 3.60 prior

December 16 - Friday
CPI, November (8:30): 0.1% expected, -0.1% prior
Core CPI, November (8:30): 0.1% expected, 0.1% prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

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

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Sunday, December 04, 2011

Stocks Rally, But Trade Went Flat

SUMMARY:

- Stocks initially rally on Europe, jobs report, but by session's end the trade went flat.
- Jobs are slowly following the economic improvement higher.
- Jobs report appears better but more people left the workforce than found jobs.
- Near term the European bid is a positive, but some head and shoulders patterns are not pleasing for the upside longer term.

Jobs report is heartening but not and stocks rally but not.

It was jobs Friday, and that means all eyes were on the monthly jobs report. It is important to note that the jobs report was not necessarily the driver on the day. Early on, stocks were higher. It was not because of the jobs report as futures were up before the report came out. There was news out of Europe that a scheme had been derived whereby central banks could make an end run around the constitutions that were blocking direct central bank aid to those countries needing help. The plan is basically that central banks would loan to the IMF, and then the IMF would generously turn around and give the money to those countries in need of assistance.

Nothing like a good, old-fashioned socialist end run around constitutional law to pump the markets up. Of course the markets do not care if it is constitutional or not. The markets care if there is liquidity. Markets care if there is money to invest in financial instruments and debt instruments and thus drive them higher. When that happens and the perception is that the money is there or on the way, stocks are going to trade higher. That is exactly what they were doing. When it hit 8:30 EST, there was a surge to the upside. Then there was an "I am not sure what the heck it all meant" pullback. That was on the jobs report.

Depending on what side of the fence you are on, or whether you are just a person who listens to rational thought and facts, you had a different opinion about what the jobs report meant. I am not going to tell you exactly what it is, although I am sure you already know what the numbers were at this point. The stocks shot up, looking good at first, and then stocks pulled back all session. The Dow was up over 100 points. By the end of the day, however, it closed flat.

SP500, -0.2%; NASDAQ, +0.03%; Dow, -0.01%; SP600, +0.341%; SOX, -0.2%

Flat as a pancake. Could not go anywhere and did not want to. Stocks were just lethargic. That is totally understandable given what stocks have done on the week. This was huge week. At one point, when the Dow was up over 120 points, it had logged the best week it had ever logged in a points term. But it could not hold the move, and they faded back to flat as you can see by the tombstone doji on SP500.

It was not the best week ever, but it was a doggone good week. Stocks were just a bit tired after breaking back out of the August-October trading range. Of course there are some burrs under the saddle, so to speak. SP500 tried the June low but could not break through. It was not a clear breakout. Let's face it, after such a huge run and then bumping up against resistance, you cannot expect them to make a break at the end of the week. Especially with a jobs report that was not that great, despite the headlines and despite trumpeting from certain sectors of the government.

THE NEWS

I have talked a lot about it, and I guess we have to hit that news and hit it hard. The jobs number is not that great on the headline. It was 120K versus 123K expected, but there were great revisions for September and October. September was revised up 52K. October was revised up 20K, pushing that to 100K. Overall with the revisions, it was not that bad. It is averaging 132K per month for the year, and that is right where you need to keep up with population increases and people just coming out of school.

So are we there? No, we are obviously not there. But the headline was the unemployment rate. It tumbled to 8.6% from 9% when, of course, 9% was expected. Holy cow. What is going on? The last time it was at this 8.6 level was March of 2009. Surely the economy is starting to really hum. You would expect employment to pick up after three months of improvement in economic data. That is exactly what has been occurring. But it is not worth 0.4% on the unemployment number. What is going on? It is going to take awhile to explain, but stick with me.

Overall, unemployment fell 600K to 13.3M. Those who have been unemployed over six months were 5.7M. That was a decline as well. Sounds pretty good, but the workforce fell 315K jobs. That means basically those people who have not looked for work for four weeks are not counted. Who has not been looking for work for four weeks? Those are the people who have run out of unemployment benefits. As soon as they run out of those benefits they quit going through the motions of saying "I am looking," and they just give up. There are no jobs out there, and they go away. That was the lowest level since January. In other words, that is it biggest drop since January as far as the workforce goes. Again, 315K people.

One of the problems is that 6.6M people are not in the workforce but actually want work. This kind of gets hard to get your hands around and maybe your head as well. There are now more people out of work and without benefits (by the tune of 700K) than there were at the same time last year. Even though there is supposedly improvement, more people are out of work and without benefits right now. Indeed, the share of industries that are adding jobs fell to 54.7%. That is the lowest in a year. The average time for being unemployed rose to an all-time high. Those are not great numbers, and at least half of the decline in the unemployment rate was caused simply by people dying or giving up and leaving the workforce. This is the strange feature that we have to deal with right now.

Typically when the economy improves and jobs start to improve, we get a spike in the unemployment rate. Just trust me when I say that it is true. The people who have been out of the market, those that we are seeing leave see that the economy is getting better. They either sense it or see people getting jobs or they hear it on the news. Then they go back and look for work. Those that disappeared off of the rolls and are no longer participating in the job search suddenly show back up. Employers tend to lag the rest of the economy. They do not want to hire until they absolutely have to hire. Then they pull the trigger and start hiring those people. The initial surge of those who came back in but could not find a job (thus the spike the unemployment rate) are hired, and then the unemployment rate drops. That happens right at the turn of the economy, of course. Things get better and people come back in. They sense it is better, but the jobs are not there jet. The unemployment rate spikes, and then it starts to go down because businesses have to hire at that point. But we have never had the spike in unemployment. We have had unemployment at 9% or more for years now.

I am borrowing from Investor's Business Daily. In 2009, unemployment spiked above 9%, and it has stayed until just the last month. We have had years of high unemployment. What has happened? There has been no big surge at the end of the recession. You have a surge at the beginning when everyone gets laid off, and then there is a surge at the end when people come back to look before the jobs are really there. What has happened instead this time, with this protracted level of 9%+ unemployment, the workforce has atrophied and withered away. There is no spike in employment, just another dousing to the labor force.

Let us think about that. When to employers hire? When they absolutely have to. They have been burned having people on when the economy fell. You typically see certain things happen. You see average hours worked jump because they have to get more and more productivity out of the workers that are there. They do not want to hire yet. Business gets better and better, so they push those people more and more. They make them work more hours, until they say "If you do not pay me more or get someone else, I'm out of here." Look what is happening: The average workweek is flat at 34.3. It even fell three weeks ago. Hourly earnings were down 0.1%. They were expected to rise 0.2%. They are not working more, and they are not paying people more. They are obviously not overtaxed. These are problems with this report.

I do not mean to say things are not getting better. No doubt that there are more jobs out there. There is some hiring going on, but it is not a boom in hiring. It is not enough to account for a 0.4% drop in the unemployment rate. It looks like we have some funky and downright strange monkeying around with the numbers. There is reason to account for a drop, but it looks as if there is overreaching. They are factoring in too much, and the problem is they are government numbers. If an administration wants to fudge, they can. I do not care if it is Democrat or Republican. These guys are starved for some good news, and I think they are overplaying their hand. As I said, the fall in people saying they found work would account for a bit more than half of the decline in the jobs number. That would have reduced it, but there is way too much of a decline for what the numbers show. They do not real tell a story.

While there has obviously been improvement in the economy over the last three months, it is not to this extent. The numbers themselves show there are reasons for the fall. Things are really not a lot better than they were with more people out of work and without benefits then there were a year ago. We still have problems even though things are turning, but let us be positive. We need some positive news in this country. There are way too many people still out of work. Even looking at the U6, which was down to 15.6M from 16.2M people, that is still unbelievably too many. It is terrible. We have to get business going.

This idea of 99% and 1% is a serious problem we have to deal with. I was discussing this with several people and small business leaders in the area, and they said they see nothing wrong with someone saying "I want what you have" if they start a business or get a job and work their rears off to get it. Instead, we have people saying "I want what you have, and I am going to petition the government to take from you what you have worked for so they can give it to me." That, I am afraid, is the huge difference we have today versus pretty much the entirety of this country's history.

Just look at the entitlement programs. I heard one fellow last night discussing it, and he said really we have $100T in debt when you factor in all the entitlements and liabilities. It is not what you can do for your country, but what the heck can my country give to me. And if they have to take it from someone else to do so, that is fine. But here is the sad truth. They could confiscate all of the wealth in this country all of the profits from the Fortune 500 companies, and they could tax the rich people all they want and more, and still they would never pay our entitlements. They would never pay it down.

The only thing we can do is stop and come up with different ways to fund these liabilities. With respect to Social Security, Medicare, and even Medicaid, that is ultimately what we will have to do. We have to change the game for people who are coming up into the system. Those who we made promises to and who have paid in and cannot change, we have to take care of them. But for those who are coming up through the system, we have to change it. The numbers do not work. The math is not there. We live longer than we did when the system was designed. You had to cheat death for two years to collect any Social Security. Now we have to change it. The question is whether we are smart enough to do that. We have a lot of people who want to spread misinformation about any possible change being the end of our country. If we do NOT change, that will undoubtedly mean the end of our country.


OTHER MARKETS

The news impacted the other markets as well. It was the European news that really had the anticipated effect on our bonds and dollar. It did not hurt that the jobs report was a bit better. But our debt instruments and our currency reacted inversely to what they should have on a stronger U.S. economy. That tells you something else about the impact of that jobs report and what it really meant on Friday.

Dollar: 1.3405 versus 1.3464 euro. The dollar was up against the euro, but it was down against just about everything else. A stronger jobs report should have seen a stronger dollar. It did not. The dollar is not in danger right now, much to the chagrin of the administration and the Fed that want to inflate our way out of this. Because there are other issues in the world, people are still hanging onto dollars versus Euros.

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


Bonds: 2.05% versus 2.09% 10 year U.S. Treasury. Bonds rallied. The 10 year moved up and drove rates down. Bonds should have sold and rates should have rallied on a strong jobs report with a good news situation for the U.S. That was not the case. People were buying U.S. bonds. Bonds are bouncing off the 50 day EMA, continuing their rally off of the July low.

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


Gold: 1,749.40, +9.60. Gold closed slightly higher. It rallied more intraday and backed off toward the close. Still in its triangle and still trying to look for a new breakout to the upside.

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


Oil: 100.94, +0.74. Oil closed up. It is still having trouble putting mileage on that 100 level. It broke through it, it fell back to 95, and it has kind of melted higher since. I do not think it will have many issues moving forward. But with China this week having its PMI starting to contract (that is its factory output) and then lowering reserve requirements on its banks to reliquify its economy, oil has a bit of a pause. It is worried about China being able to suck up all that excess oil in the world. Oil did not just blast off once more. But again, I do not think it is really in trouble.

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


TECHNICAL SUMMARY

INTERNALS

Breadth. Advancers led 1.5:1 on NASDAQ and 1.5:1 on the NYSE.

Volume. Volume fell 10% to a measly 1.6B shares on NASDAQ. It rose 4% on the NYSE to 815M, but that was rather pathetic and well below average as well.


CHARTS

SP500. A broader top set in to start this year. A head and shoulders with the crash into July and August. A recovery and now struggling. This week was a good week for the SP500. It moved up to the March and June lows, but it could not punch through. It tried to do so on Friday, but it was not the day. It got thrust back, showing a tombstone doji at the top of this range. Despite the great week, that tombstone doji suggests there may be a fall back. The jobs report did not instill a lot of excitement on Friday, but maybe the market was just tired. It is at a critical level. It broke down from that head and shoulders. It rebounded, sold, and it made a higher low. Now it has to prove itself once more. We will have to see.

It is in a range, no doubt. It may be over the August-October range, but it has not broken back up through this key level. It did so once, but it could not hold the move. Now it looks like it might falter below that. We will have to see how it plays out. The bid from Europe will play a big role in the weeks to come. If it is still there, if the market still perceives more money is coming, the bid will remain and stocks should rise. After all, they love liquidity and they love handouts. As long as it is on this side of the ocean or on the continent side of the ocean, stocks will love it. But they will have to come up with something, and Friday it was not enough. They had another inkling of what was to come, but it was not enough to keep stocks moving to the upside.


NASDAQ. NASDAQ posted no gain. It gapped higher, closed flat. It is still above its June peak, so it has a little momentum. Really it has not had a breakaway move from the August-October range. The jury is out on it as well. It gapped and reversed. That is not necessarily great action, but it was on low volume at the end of the week of a strong move higher. It really was not in the mood to go anywhere. But as with SP500, it had that head and shoulders, the break down, and now it is coming up to test again. We will just have to see what happens. Again, if the bid remains thanks to European influences (or, more correctly, European liquidity), NASDAQ should find a bid and resume the move to the upside.


SP600. The small caps posted the best gain of the day, but they are still below their March and June lows, showing a doji just as SP500 did. Showing it right below the 200 day EMA as well as that late-October peak which was the recovery peak off of that sharp selling into early October. The small caps have something to prove as well. They have to get through this level. But after such a big move, they can afford to come back, test a little bit, and then make the next break to the upside. We will see if that comes true. If the economic data continues to improve and we get that liquidity, it should not be a problem.


SOX. Semiconductors broke through that downtrend off of the February peak, but they could not hold it into the close. Again they are suffering from the same problems as the rest of the indices. That was just a doggone good week that took it up to resistance. Now maybe it will have to rest a bit before it makes the break through.


LEADERSHIP

I need to go through a lot of sectors and will show you a lot of charts. They are not representative of every stock in the market. There are still stocks that are in great shape. Oh, look at all the foreshadowing. But these are worrisome.

Semiconductors. Remember that the semiconductors are a leadership index. They tend to move higher before the rest of the market and lower before the rest of the market. That is because chips are in everything. If there will be an economic recovery, they will see it first. That is exactly what happened in 2008. They bottomed in Q4 and rallied. Then when everything else hit the lows in March, they were just making a higher low. They were off to the races, and this has happened so many times. It happened out of the 2000 recession. It has happened in pretty much every recession I have been through. I have played the chips as the leader out of that recession. It is really cool. I love it. They led out of this one, but they also led to the downside.

What have they formed here? You can see a pretty good head and shoulders has set up in the SOX. Looking at the SMH, that head and shoulders is pattern shaping up. Looking at individual semiconductors, you can also see the head and shoulders. BRCM has a broad top and a breakdown recently. Now it is coming up to test the bottom of that breakdown. Longer term, BRCM looks really weak. LRCX has also put in this big head and shoulders dating back to early 2010. Am I scaring you yet? That is not the intention. I just want to point things out. There are problems that will have to be dealt with.

Industrial. Industrials are always important. This is one of the areas that have been doing really well. We have had the export economy under President Obama. These are the big companies that have been performing very well. GE may be in a trading range. It could be setting up a head and shoulders of its own. That is not that clear. Let us look a little deeper. CAT looks like a real topping pattern. Big run. Look at the three highs, and a lower high in the selloff. The first really major correction since the low in March of 2009. Now it has returned back up to the bottom of that trading range.

It does not look that great. Are there worse patterns? Look at IR. It is a big manufacturing company. It has a head and shoulders with a really wimpy shoulder. It has moved up recently, sure, but it is very worrisome longer term. HON has been a leader. Its stock pattern matches that of the indices. We will see what happens. It looks to be running out of some juice, although it still has a little power. HUN is big into chemicals. A head and shoulders. ASH is another big chemical company. It has a very rounded top. Note this second peak in the middle of 2011. MACD is lower. It is running out of steam, or so it appears to be longer term.

Energy. BTU has a head and shoulders. HAL should be doing great, but it has kind of a toppy pattern. It broke sharply lower, a lower high. Looks to be struggling. SLB is a very similar pattern.

China. SINA peaked and it is breaking down. Of course we have been playing it to the downside. CTRP is a Chinese stock that we love to play. It put in that broad top and has rolled over.

Technology. Some technology stocks are having problems. We have a play on NTGR, but it is longer term trying to set up a head and shoulders. As an aside, just because they have longer-term issues does not mean we cannot play them short term to the upside. What do we know about head and shoulders? They do not always consummate. But this is just worrisome. I am drawing attention to it because you have to stay ahead of the game.

ORCL set up a head and shoulders this year. It sold off, and now it is making a lower high. That does not mean it is not going to bounce back up. We just need to watch it. CA has that big head and shoulders forming up.

Shipping. TK, an important transportation company, is setting up that long term, two-year head and shoulders top.

Metals. FCX has that big, rounded top. It is making a right shoulder right now. It was a long left shoulder, and the right shoulder may also take awhile to consummate. It is setting up. Looking at the Copper index overall, it has the same kind of big head and shoulders pattern. There is a big top in Steel and Iron. It never even made it back to the prior high before kind of rolling over.

Grains/Foods. Grains are a problem as well. CORN has a head and shoulders. That seems weird. If we are recovering and the world is growing, we should need corn. Why would corn prices look to be rolling over? The cotton index, BAL, had a huge rally in 2010. It looks to have peaked out, forming its head and shoulders as well. For those that love their morning cup of joe, JO looks as if it has peaked and rolled over after a big rally as well.

It is not as severe. This is just in 2011. A lot of these other patterns are spanning two years. The SOX is a two-year span. It had that big run on the initial Quantitative Easing, and then it had a pause. It had a run on the second Quantitative Easing, but it looks like it is ready to roll over. If we do not get another round of Quantitative Easing or some kind of stimulus or financial liquidity over in Europe, we might see this roll over.

I guarantee you the central banks and our Fed are watching all of these charts. They are not so pronounced on our indices, but they are still there. Never recaptured the 2008 high, and they have this rollover look to them. The SP500 has it. NASDAQ has it, too, although it did manage to take out the 2008 high. The small caps look better. They took out the high, but they are still struggling. Small caps need to be leading the way if there is to be a real economic recovery in the U.S.

I point these out not to say the world is ending and we should all run into a cave right now. I point it out to show you that we are not as strong as some are saying. We are supposedly recovering from the Great Recession and have turned the corner. In the U.S, some say how strong we are every morning on the financial stations. Maybe we look strong relative to a bunch of the European countries, but we are not strong in the way of leading the world like we used to be. Not even close. We have to be concerned that we are getting a head fake. We have to watch out for that one "in your ear" as Shoeless Joe Jackson warned Moonlight Graham in "Field of Dreams."

We could be setting up for the one in our ear. We are being told everything is recovering. We are being told that the central banks have it under control and will make things work. But that may not be the case. The patterns are worrisome; something nefarious this way comes (sorry Ray Bradbury). There could be problems if some more liquidity is not pumped into the markets. Every time Alan Greenspan saw this set up, he knew he had to pump in more liquidity. But all that has done is build a house of cards bigger and bigger, or inflated the bubble more and more. Eventually it has to pop or be deflated. That is what worries me. I have looked at a large cross section of stocks and materials, and there are similar patterns setting up.

Retail. Retail stocks are still performing very well. RL continues to move higher. VFC continues to move higher. PVH is still moving to the upside, and BBBY is still moving to the upside. It is hard to argue with those and I am not arguing. The consumer is spending, and that may lead the world out of trouble. I will not write that off. I am just saying we have to be careful looking ahead while we are trading, investing, and moving in on our position plays. We just have to keep this in mind and know that it is out there.

If it starts to come together, we need to be ready. That is all we ever do; it is nothing new. It is just another part of our job to keep you informed and for you to keep yourself informed as we move forward. Just know the big patterns, the overlays, as we trade in a day-to-day, week-to-week, and month-to-month basis. If you do that, you will stay out of trouble. You know what is coming, but do not let it totally color your short-term actions so that you think everything will fall.

Take what the market gives. If you have good upside setups as we have had, you take them. Maybe it is in a context of an overall top that ultimately breaks down. That does not mean we cannot make money then.


THE MARKET

SENTIMENT INDICATORS


VIX: 27.52; +0.11
VXN: 27.69; +0.49
VXO: 27.93; +0.25

Put/Call Ratio (CBOE): 0.98; +0.04

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: 44.2% versus 47.4% versus 44.2%. Right back down to the level hit three weeks back though still well above 35%. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 30.5% versus 32.6% versus 34.7%. Unlike bulls that backed off, bears continued their more bullish stance as they became more endangered. The index did spend seven weeks over the 35% threshold considered a bullish indicator. 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.


CHARTS

NASDAQ

Stats: +0.73 points (+0.03%) to close at 2626.93
Volume: 1.634B (-10.02%)

Up Volume: 769.11M (-280.89M)
Down Volume: 876.4M (+116.6M)

A/D and Hi/Lo: Advancers led 1.52 to 1
Previous Session: Decliners led 1.71 to 1

New Highs: 44 (+3)
New Lows: 41 (-17)

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: -0.3 points (-0.02%) to close at 1244.28
NYSE Volume: 815M (+4.09%)

Up Volume: 2.49B (+820M)
Down Volume: 1.58B (-410M)

A/D and Hi/Lo: Advancers led 1.56 to 1
Previous Session: Decliners led 1.56 to 1

New Highs: 121 (+1)
New Lows: 11 (-4)

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

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


DJ30

Stats: -0.61 points (-0.01%) to close at 12019.42
Volume DJ30: 150M shares Friday versus 144M shares Thursday.

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


MONDAY

Now that we have the jobs report out of the way, we still have plenty of economic data. There are Factory Orders, ISM Services, and then Initial Jobless Claims, of course. It will be interesting to see how Wholesale Inventories are shaping up ahead of the holidays. Then we finish the week with the first look at the Michigan Sentiment for December.

That is all well and good, but what will rule the roost? It will be what is happening in Europe. Why? The jobs report did not light any fires in the U.S. on Friday. It may be that the market was a bit tired, but it is also at resistance. The jobs report was not that great. It is just following a lukewarm recovery in the U.S. While the recovery is nice, the ECRI still says it will not prevent a recession in 2012. That ties in somewhat to those longer-term head and shoulders charts.

The SP500 is below the March and June lows. It is showing a doji after a nice week. Can it continue? We will find out. We have a lot of great upside setups. We also see a lot of downside setups, and it is somewhat worrisome. As a matter of fact, we will probably put on another play on the SDS or the SPY because of this pattern. We had a sharp selloff, we had a rebound to a lower high right below important resistance. There was a fade, and then a rebound to a lower high right below an important resistance. We may be range-bound again, but we will have to let it show us what it will do. We will be ready either way. That means we have to be ready on the positions we took to the upside. If we get back down in the range and want to turn around, we will kill them, go downside, and make some money.

If we are range-bound, so be it. If we are not, so be it. The bid is the key. Will the EU, the individual countries, the IMF, the ECB, and even the U.S. Fed keep that bid under Europe and thus the bid under the U.S? The Federal Reserve here does not want to go on QE3 if it can avoid it. It may accomplish its goals by Europe inflating its currency and financial markets, and thus dragging us along with it. After all, as we saw in July and August, it was Europe pulling us down. If it can inflate their asset prices and pull us up, too, it will do whatever it can to help short of out-and-out lending money to the EU.

Given the mindset of the Ben Bernanke Fed and the change in the ECB with the change in leadership from Mr. Trichet, I think we could very well maintain that bid and continue to the upside. That is what I expect to happen, but my expectations will not tell the market what to do. We simply have to be ready. While I expect Europe to continue to come out with clever plans to form some kind of Quantitative Easing, we just have to be ready in case things turn ugly after a fantastic week in the U.S. stock market.

I will see you on Monday. Have an outstanding weekend!



Support and Resistance

NASDAQ: Closed at 2626.93

Resistance:
2643 is the September 2011 high
2645-2650ish from December 2010 consolidation
The 200 day SMA at 2674
2676 is the January 2010 low
2686 is the January 2011 closing low
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2754 is the recent October 2011 high
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low
2593 is the November intraday high
The 50 day EMA at 2593
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November gap down point
2532 is the early August gap down point
2512 is last week's gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows


S&P 500: Closed at 1244.28
Resistance:
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1258 is June 2011 intraday low
The 200 day SMA at 1265
1275 is the January 2010 low, early January 2011 peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
The 50 day EMA at 1218
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low


Dow: Closed at 12,019.42
Resistance:
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,284 is the October 2011 peak
12,391 is the February 2011 peak
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
The 200 day SMA at 11,946
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
The 50 day EMA at 11,688
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low


Economic Calendar

November 28 - Monday
New Home Sales, October (10:00): 307K actual versus 312K expected, 303K prior (revised from 313K)

November 29 - Tuesday
Case-Shiller 20-city, September (9:00): -3.6% actual versus -3.0% expected, -3.80% prior
Consumer Confidence, November (10:00): 56.0 actual versus 42.5 expected, 40.9 prior (revised from 39.8)
FHFA Housing Price Index, September (10:00): +0.9% actual versus -0.1% prior

November 30 - Wednesday
MBA Mortgage Index, 11/26 (7:00): -11.7% actual versus -1.2% prior
Challenger Job Cuts, November (7:30): -12.8% actual versus 12.6% prior
ADP Employment Change, November (8:15): 206K actual versus 125K expected, 130K prior (revised from 110K)
Productivity-2nd Rev., Q3 (8:30): 2.3% actual versus 2.6% expected, 3.1% prior
Unit Labor Costs, Q3 (8:30): -2.5% actual versus -2.1% expected, -2.4% prior
Chicago PMI, November (9:45): 62.6 actual versus 57.5 expected, 58.4 prior
Pending Home Sales, October (10:00): 10.4% actual versus 0.1% expected, -4.60% prior
Crude Inventories, 11/26 (10:30): 3.932M actual versus -6.219M prior

December 1 - Thursday
Initial Claims, 11/26 (8:30): 402K actual versus 390K expected, 396K prior (revised from 393K)
Continuing Claims, 11/19 (8:30): 3740K actual versus 3650K expected, 3705K prior (revised from 3691K)
ISM Index, November (10:00): 52.7 actual versus 51.0 expected, 50.8 prior
Construction Spending, October (10:00): 0.8% actual versus 0.3% expected, 0.2% prior
Auto Sales, December (15:00): 4.27M prior
Truck Sales, December (15:00): 5.84M prior

December 2 - Friday
Nonfarm Payrolls, November (8:30): 120K actual versus 123K expected, 100K prior (revised from 80K)
Nonfarm Private Payr, November (8:30): 140K actual versus 141K expected, 117K prior (revised from 104K)
Unemployment Rate, November (8:30): 8.6% actual versus 9.0% expected, 9.0% prior
Hourly Earnings, November (8:30): -0.1% actual versus 0.2% expected, 0.2% prior
Average Workweek, November (8:30): 34.3 actual versus 34.3 expected, 34.3 prior

December 5 - Monday
Factory Orders, October (10:00): -0.4% expected, 0.3% prior
ISM Services, November (10:00): 53.4 expected, 52.9 prior

December 7 - Wednesday
MBA Mortgage Index, 12/03 (7:00): -11.7% prior
Crude Inventories, 12/03 (10:30): 3.932M prior
Consumer Credit, October (15:00): $7.0B expected, $7.4B prior

December 8 - Thursday
Initial Claims, 12/03 (8:30): 395K expected, 402K prior
Continuing Claims, 11/26 (8:30): 3700K expected, 3740K prior
Wholesale Inventories, October (10:00): 0.2% expected, -0.1% prior

December 9 - Friday
Trade Balance, October (8:30): -$44.0B expected, -$43.1B prior
Michigan Sentiment, December, Preliminary (9:55): 65.0 expected, 64.1 prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

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

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