GDP Tries to Stymie the Rally

SUMMARY:

- GDP tries to stymie the rally, but stocks recover in the afternoon.
- Still bumping the highs, still not breaking through.
- GDP at 2.8% is inflated by inventories adding almost 2 points to the total. This is recovery? Anyone could get this result by flooding the economy with dollars.
- GDP internals tell why Bernanke downplayed the economy Wednesday.
- Consumer Sentiment continues to improve thank goodness.
- Dollar struggles (where is the strong dollar mantra?), bonds rally on Fed action, economic data.
- Leaders rallied Friday but the market is not done selling as tops, even for near term tests, take a bit of time to form.
- Can make money but now our game plan has to change with the indices at the prior highs.

GDP internals underscore the problems with the economy and those that may come.

In the closing alert on Friday I included a note I sent to the traders in the office about my feelings on where this market was. We typically discuss that note live between the traders in the afternoon to figure out where we want to go and make sure we are all in the same page. We also look out over the next session or, in this case, Monday and next week. I included part of that note because I think it did a good job of spelling out what I was talking about on Wednesday and Thursday with respect to where the market is going in the coming week or two based on the additional information we received Friday in the economic numbers.

First I will go over a bit of the background for the day, and then I will get into that note in particular. It was a mixed back-and-forth session that saw the NYSE large cap indices struggling. The SP500 and the DJ30 closed slightly lower, but it was a growth day. The growth indices such as NASDAQ, SP600, and the SOX staked out the lead on the day, posting upside gains. Looking at where they closed on the session, if this market wants to sell (as surely seemed the case on Thursday), it does not seem to want to sell that hard. Stocks declined after the premarket GDP data came out. That data showed a consumer less consumption-minded and business falling sharply while inventories piled higher as a result.

In the backward world of GDP calculation, without inventories rising due to less spending, GDP would have risen only 0.8%. Now that is growth, my friends. The worry is we have a repeat of early 2011 when the economy sputtered after a good finish to 2010. Indeed, that finish was better than the first read of Q4 in 2011 showed us on Friday. The market had its issues.

SP500, -0.16%; NASDAQ, +0.4%; Dow, -0.58%; SP600, +0.59%; SOX, +0.34%; NASDAQ 100, +0.29%.

The market took a hit early on when the GDP numbers came out. At 2.8%, that was significantly less than expected. There are other factors I alluded to that I will talk about later. There was a recovery, however. A rebound but then a slump into lunch. Buyers reasserted themselves. They bought on a dip, driving stocks higher in the afternoon, pushing NASDAQ and the SP600 back to positive. It brought SP500 and the Dow well off of their lows to close out the session. SP500 bounced up off of its 10 day EMA. Again, if the market is trying to sell, it is not trying to sell that hard.


OTHER MARKETS

There was an impact from the weaker GDP numbers.

Dollar. 1.3209 versus 1.3156 euro. The dollar sold. With a weaker economy, why do you need to invest your money in the dollar? Money gets pulled out of weakening economies, and that is what the dollar showed on Friday. In the premarket alert this morning, I talked about the Fed's policies and what it is doing to the dollar. That would include the administration's policies as well. When was the last time you heard that old mantra that "A strong dollar is in the best interest of the United States?" In Bill Clinton's administration we heard it all the time. Even in President Bush's administration, although they did not really believe it, they still said it. Today I could not remember the last time I heard anyone from the Obama administration say that a strong dollar is in the best interest of the United States.

I know some of you will e-mail and say they said it on this day or that day. My point is that we used to hear it all the time on CNBC, Bloomberg, Fox Business, or wherever. You could not swing a dead cat without hitting someone in the administration who said something about a strong dollar being in the interest of the United States. And before I get the cat lovers writing in, that is just a phrase from Huckleberry Finn.

In any event, the dollar did not have a lot of faith in the U.S. recovery as investors fled the dollar for other currencies.


Bonds. 1.90% versus 1.96% 10 year U.S. Treasury. Bonds rallied on the news. Why? People get scared when the economy weakness. They want safety and they ran to U.S. Treasuries. It does not hurt that the Fed's policies are pushing people toward Treasuries once again even though they are not yielding anything. Why? The Fed says it will keep interest rates low. You can make money as bonds rally and yields fall. Indeed, it was enough today to have the Fed's Lacker say that the U.S. may have to raise rates before 2014.

That is damage control. The Fed is stretching the 0% interest rate timetable, and it does not like how that is being received and commented on in the financial markets. It is trying to say this is not just the printing press running again. "We are aware that there could be inflation, blah, blah, blah." No one is really buying it just as no one in the Bush era really bought the policy statement that they believed a strong dollar was in the interest of the U.S. Actions speak louder than words. They did so in the Bush administration with respect to the dollar, and they are now with the Fed's treatment of bonds and interest rates.

As an aside, it is no wonder that the Fed did what it did and Bernanke said what he did in the Q&A; the Fed got a pre-look at these numbers and was not impressed with what it saw. Thus it said it would keep these rates lower. But it has to do the damage control. It made that promise to keep money cheap and free to the big banks and companies. While the Fed cannot do anything else because it has itself in a box, it is really not helping. It is pushing money away from the U.S. as we see in the dollar.

Bonds are still in trouble, but they rallied back up to the 50 day EMA. The 5 year reached a record low yield at 0.75%.


Gold. 1,732.60, +2.70. Gold did not do a lot. That was after a big run for the week. After hours gold was up another 15 clicks. It continued to run. The Fed promises cheap, easy money and gold sees is as inflationary. Gold broke out of its range to the upside when it looked ready to roll over and head back down. It all hinged on what the Fed did, and you see the result.


Oil. 99.47, -0.23. Oil was virtually flat on the session. Still struggling in the range. Still not following, still not rising. A lot of it depends on what happens with Iran and others. Oil is being held hostage somewhat, if you will pardon the rather hackneyed allusion to the 1970's when Iran was involved with U.S. hostages.




THE ECONOMY

TO VIEW THE ECONOMIC OVERVIEW CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html





TECHNICAL SUMMARY

Volume. -14% NASDAQ, 1.73B; -5.5% NYSE, 759M. Volume fell off the table. There was no selling strength, and there was no real buying strength.

Breadth. 1.87:1 NASDAQ; 1.85:1 NYSE. Breadth was to the upside.


On Friday many were saying that the Thursday reversal that I talked about quite extensively was apparently nothing. It may be nothing, but it is not likely. As discussed in the office this afternoon, this is one of those times you can get burned jumping in too quickly if you were expecting to get into trades and stay in for several weeks. Why? The market is likely hitting a level where it caps out this move near term. Does it roll over? Move sideways? Just test modestly? It can be any of those. We could get a rollover of significance that breaks down into this lower range. We could get a rollover that just tests the October peak. Or we could get a lateral, choppy move for weeks on end. Even if a rollover is coming and even if stocks will fall over the next few weeks, it often takes time for buyers to finally run out of steam and stop buying on the dips.

Looking at the mid-2010 recovery, we had that inverted head and shoulders and the rally back up to that prior peak. Right when it came back up to the peak before it broke out, it stalled and faded back from that April peak and tested just a bit. But then it turned around, broke out, and started the nice rally into April through July. Fast forwarding to the current situation, the indices are in the process of bumping into that prior peak. The Dow made that run on Thursday and reversed. It did not roll over completely, but it threw a big doji and was down on Friday. Not selling off, but it was down. They have not made that test, however. That is the same test from 2010. But that is likely to happen, and they are likely to come back and test near that October peak. That was the recovery high that they had a little trouble moving through. They will come back and test that to some degree. It has not been answered yet as to how far.

This time around why is it different? Why might it not continue to the upside? Things are not that great right now. GDP was crappy at 2.8%. As I noted, 1.9 points of that was an inventory bill as consumer and business spending dropped off even with auto sales up 38%. This may be an overall top, and not the bump of the prior high that precedes a test that then leads to a breakout. Again, that is the action we saw back in late 2010. As I noted, however, that is not an answered question as of yet. Thus you will always have up and down action as we saw on Friday. Part of the market did fine and other parts struggled. It is likely going to be choppy for awhile. Those that move in too quickly in anticipation of an upside breakout or a downside breakdown often get ground up in the choppy action.

Your next statement might be, "Then why the heck are we even worrying about this right now?" Because the subscribers and those of us in the office that want to trade positions can make money. You have to look for the juicy, ripe moves to the upside and downside that can make us nice gains without having to break any resistance or support. You want to capture moves without needing any kind of breakout or breakdown because in a choppy, indecisive market that is testing those prior highs, you are not going to get as many breakouts. Just when you get the move going, you hit resistance and at it stalls out and fades. If you have to break through resistance, you will be in trouble. You end up getting stuck in a play or you have to bail on the play or just have some dead money for awhile. If you are banking on a breakout in order to make money, the odds are stacked against you in this market and the market that is likely to come over the next few weeks. The probabilities do not have your back as they have. Again, that kind of action can grind you up if you are looking to position trade for several weeks.

What do you do? For now you play partials. Do not get too far into a potentially choppy market, and you play the really ripe moves where you do not have to make that break through any resistance or break down through support to make some nice money. We are not trying to pick up a dollar while risking a dollar or two. You still want to have that good ratio. A good probability of a sold return but without making the move through a resistance level. That makes finding plays a lot harder. That is what everyone was moaning about today while looking ahead for the weekend. That is one of the reasons we had this talk. You have to put your mind in sync with what the market is showing you. Do not try to force that square peg into a round hole. Be smarter.

Again, we will play partial positions. We took a couple of partial positions today. We also took gain on other positions and closed some others. You have to continue your position maintenance. You have to be smart. This is not the time to load the boat. Things looked great on Friday, and we made some money on plays that moved wonderfully for us. I was very pleased with the action on Friday, and not because I feel the troubles are over and the market is going to race higher now or lower over the next 5 days. I was pleased because our positions made us a lot more money.

Many surged. JAZZ made a nice break to the upside. NFLX continued to push higher after its gap to the upside. SCSS moved up. KLAC continued its move on good volume. LULU was up as well on a good move. SOHU posted a nice 6%+ gain. STX broke higher out of a lateral consolidation. Those are just a few of them that moved up nicely, and this is on top off a great week for us. Leaders in good position making their moves. We are not assuming that this will last, however. We let most of them run today. We did not take a lot of gain. We will watch closely next week, careful to bank more gain if they start to wear out (i.e. the market bumps up against that resistance again and starts to falter).

Remember, it takes a bit of time for the momentum to wear out. The momentum is upside right now. If it keeps bumping up against those prior highs and selling off, it will wear itself out. Thus it is likely to give us that test. If it holds on that pullback, we will see new setups, no doubt. Indeed, we see some pretty juicy setups with no resistance overhead to be broken in order to make us the kind of money to makes the play worthwhile. We will look at those this weekend for the coming week.

There you have it. That is basically the meeting we had this afternoon talking about what we are doing and why we are doing it. It just summarized what I have been saying over the past several sessions. You have to play smart now and get the probabilities in your favor. You have to keep them in your favor and not lose sight of what is happening in the market overall. We can still make great money, but we have to protect what we have made to this point. Do not be caught up in days such as Friday that saw a lot of our positions the leaders making great moves. You can say, "Man, this market is going to higher." But leaders lead, right? They perform better than other stocks, and they were leading on Friday. But if the market cannot break through these highs, those leaders will not be able to take us out of it all by themselves. They, too, will come back.


THE CHARTS

I will just note that all of the major indices other than the SOX experienced the 50 day EMA moving up through the 200 SMA. Most places look at the 50 day EMA versus the SMA. The EMA is the one that most of the traders are watching now. We know the SP500 and the Dow have already made that move along with the NASDAQ. On the SP600 the golden cross as occurred. That is an overall bullish indication. Why? The 10 day, 20 day, and the 50 day are now sloping to the upside. The momentum is moving higher. If it sustains, the 200 day will flatten further and then turn up. Then all of the major indices will be moving higher. That is a powerful trend.

If there is a test, do not panic. With what we see in stocks and EMAs as well, it could precipitate a test of the cross. Then, just about the time that the test and the cross start to materialize as the 50 day slides lower, stocks should find their bottom and break back to the upside. That would be perfectly normal. It is all in the test. It is how stocks and indices test moves that tells you the tale as to the underlying strength. This cross is a good indication, but it is not the answer in itself.


THE MARKET

SENTIMENT INDICATORS

VIX: 18.53; -0.04
VXN: 19.31; -0.25
VXO: 18.06; +0.49

Put/Call Ratio (CBOE): 0.88; -0.1


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: 50.0% versus 50.0%. Still at the flat line as it has been for all of January. To the end of 2011 showed a slow, steady increase to this level. Still probing the overdone range and could be part of the picture that tops out the current in January, but it is not there yet. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. 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: 28.7% versus 29.8%. Backing off but just modestly from that 30% level where bears moved down to in early December and have held ever since. Again, bears are not growing but they are not necessarily buying into the upside move. Back and forth around 30% where it has flat-lined for 8 weeks. Again, Bears remain skeptical. Skeptics in the face of a move is a good sign the move continues. Lower but not anywhere near suggesting investors are carefree. The average the past month and more is 30%. 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: +11.27 points (+0.4%) to close at 2816.55
Volume: 1.736B (-13.89%)

Up Volume: 973.01M (+329.94M)
Down Volume: 716.4M (-483.6M)

A/D and Hi/Lo: Advancers led 1.87 to 1
Previous Session: Decliners led 1.23 to 1

New Highs: 71 (-27)
New Lows: 9 (-4)


SP500/NYSE

Stats: -2.1 points (-0.16%) to close at 1316.33
NYSE Volume: 759M (-5.6%)

Up Volume: 1.96B (+420M)
Down Volume: 1.95B (-1.1B)

A/D and Hi/Lo: Advancers led 1.85 to 1
Previous Session: Decliners led 1.04 to 1

New Highs: 177 (-68)
New Lows: 8 (-1)


DJ30

Stats: -74.17 points (-0.58%) to close at 12660.46
Volume DJ30: 164M shares Friday versus 131M shares Thursday.


MONDAY

We have a ton of economic data. It will be the first Friday of the new month, and that means we will have the payrolls report ending the week. Everyone will be looking at that. It will be interesting to see how that turns out. Can it continue to improve? Or will what appears to be a slowdown in Q4 in some very key economic metrics starts to slow down the improvement (for want of a better word) in employment.

On Monday there is Personal Income and Spending. Tuesday brings the Case/Shiller, the Chicago PMI, and Consumer Confidence as well. We have ADP on Wednesday as well as the ISM. Huge numbers. Challenger on Thursday, Initial Jobless Claims on Thursday. Productivity on Thursday. Friday brings not only the employment report but Factory Orders and the ISM Services. A huge week of news, not to mention more earnings.

It will be a busy news week. There will be a lot more on Europe. There were downgrades by Fitch of Spain and Italy on Friday. No surprise there with a two-notch downgrade. There will be more Europe news that may or may not impact negatively on the market. We have been able to overcome a lot of that, but now we are back at these highs. That tends to magnify the news that is negative. Investors naturally pull back and wait to see.

Remember that we could see a choppy back-and-forth. Thursday was down. Friday was quasi up. The big cap NYSE was not. Otherwise tech and growth was up, and our leaders performed well. We have down days and we will have up days. I do not think we will get a breakout. Typically you do not get that move on the first try. What happened back in the summer of 2010 is classic. You have the rally and then, in the fall, the tap of the prior high and the test before the breakout. We will have to watch and see.

If the Fed announces another QE3 at some point, the market will break out and go to the upside. Before that happens, the Fed will be watching to see how they perform at these prior highs and if we get a fall back. The deeper the fall back, the better the chance we have of the Fed acting. Why? The Fed knows that if the market falls back it is seeing 2012 weakening. After the GDP advance report for Q4 that was released on Friday, we understand why Bernanke talked down the economy on Wednesday in the press conference.

Prepare for chop. It will happen. Do not get too married to positions. Do not stay heavy in all positions. We have lightened up on a lot of them. Those we have been taking lately have been partials. When we move into any new plays coming up, it will be partials. We will take our gain. We will take that partial and reduce it even more by logging the gain when we get there (or we get darn close) as we have been. We can make money in this, no doubt about it. We just have to adapt and cannot apply breakout strategies in all cases. Maybe there will be some, but we will play those on the test. The market will be choppy and up and down. Again, that can grind you up.

Do not be impatient. This is one of those times that patience pays off. Take the move when it is there. Do not chase the bus and do not rush in too quickly. Those are very much related at these times in the market. You can chase the bus and be in too quickly at the same time. It makes no sense, but it has the same effect. That is the way I look at it. The other day I said you do not have to be that smart to make money in the market, but you just have to think a little differently. There is an example of it.

In any event, we will get good plays where we do not have to make breakouts. We do not have to count on a break to make us money. Harder to find, yes. Fewer plays, yes. That is the way it is at these potential tops and bottoms where the market is trying to figure out itself what will happen. Be smart and be patient. Let the plays come, and then jump on them when you see them. If they do not go your way, we will get the heck out of Dodge. Preserve your money. Take the money when it is there for taking. Do not try to push for something that is not there; the odds are against you in this kind of market, and it will most likely be taken away from you.

I will see you on Monday for a busy news week. Have a great weekend!


Support and Resistance

NASDAQ: Closed at 2816.55

Resistance:
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:
2796 is the February gap down point
2762 is the February low
2759 is the mid-May low
2754 is the recent October 2011 high
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
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
The 50 day EMA at 2674
The 200 day SMA at 2659
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
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 island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2441 is the November 2011 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 1316.33
Resistance:
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
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:
1313 from the August 2008 interim peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
The 50 day EMA at 1268
1258 is June 2011 intraday low
The 200 day SMA at 1257
1255 is the late December 2010 consolidation range
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
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
1158 is the November 2011 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 12,660.46
Resistance:
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:
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 50 day EMA at 12,244
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 11,972
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
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

January 25 - Wednesday
MBA Mortgage Index, 01/21 (7:00): -5.0% actual versus 23.1% prior
Pending Home Sales, December (10:00): -3.5% actual versus -3.0% expected, 7.3% prior
FHFA Housing Price Index, November (10:00): +1.0% actual versus -0.2% prior
Crude Inventories, 01/21 (10:30): +3.56M actual versus -3.438M prior
FOMC Rate Decision, January (12:30): 0-0.25% actual versus 0.25% expected, 0.25% prior. Extended low rates from mid-2013 to late 2014. Wow.

January 26 - Thursday
Initial Claims, 01/21 (8:30): 377K actual versus 375K expected, 356K prior (revised from 352K)
Continuing Claims, 01/14 (8:30): 3554K actual versus 3550K expected, 3466K prior (revised from 3432K)
Durable Orders, December (8:30): 3.0% actual versus 2.0% expected, 4.3% prior (revised from 3.7%)
Durable Orders -ex A, December (8:30): 2.1% actual versus 0.7% expected, 0.5% prior (revised from 0.3%)
New Home Sales, December (10:00): 307K actual versus 321K expected, 314K prior (revised from 315K)
Leading Indicators, December (10:00): 0.4% actual versus 0.7% expected, 0.2% prior (revised from 0.5%)


January 27 - Friday
Chain Deflator - Q4, First iteration (8:30): 2.6% prior
GDP - Q4, First iteration (8:30): 2.8% actual versus 3.2% expected, 1.8% prior
Chain Deflator-Adv., Q4 (8:30): 0.4% actual versus 1.5% expected, 2.6% prior
Michigan Sentiment - Final, January (9:55): 75.0 actual versus 74.2 expected, 74.0 prior


January 30 - Monday
Personal Income, December (8:30): 0.4 expected, 0.1% prior
Personal Spending, December (8:30): 0.1 expected, 0.1% prior
PCE Prices - Core, December (8:30): 0.2 expected, 0.1% prior

January 31 - Tuesday
Employment Cost Index, Q4 (8:30): 0.4 expected, 0.3% prior
Case-Shiller 20-city, November (9:00): -2.6 expected, -3.4% prior
Chicago PMI, January (9:45): 62 expected, 62.5 prior
Consumer Confidence, January (10:00): 67 expected, 64.5 prior

February 1 - Wednesday
MBA Mortgage Index, 01/28 (7:00)
ADP Employment Change, January (8:15): 175K expected, 325K prior
ISM Index, January (10:00): 54.7 expected, 53.9 prior
Construction Spending, December (10:00): 0.4% expected, 1.2% prior
Crude Inventories, 01/28 (10:30)
Auto Sales, January (14:00): 13.5M expected, 4.20M prior
Truck Sales, January (14:00): 6.04M prior

February 2 - Thursday
Challenger Job Cuts, January (7:30): 30.6% prior
Initial Claims, 01/28 (8:30): 375K expected,
Continuing Claims, 01/21 (8:30): 3525K expected,
Productivity-Preliminary, Q4 (8:30): 0.6% expected, 2.3% prior
Unit Labor Costs, Q4 (8:30): 0.8% expected, -2.5% prior

February 3 - Friday
Nonfarm Payrolls, January (8:30): 170K expected, 200K prior
Nonfarm Private Payrolls, January (8:30): 145K expected, 212K prior
Unemployment Rate, January (8:30): 8.5% expected, 8.5% prior
Hourly Earnings, January (8:30): 0.2% expected, 0.2% prior
Average Workweek, January (8:30): 34.4 expected, 34.4 prior
Factory Orders, December (10:00): 1.6% expected, 1.8% prior
ISM Services, January (10:00): 53.1 expected, 52.6 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

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

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

Quantitative Easing III Likely on the Way

SUMMARY:

- France spills the beans early on an S&P downgrade and the market takes its licks.
- Stocks sell but once again they recover off the lows with the low to high intraday action. If S&P action occurred a couple of months back we would be talking about Black Friday part 2.
- JPM disappoints but the reaction in the stock and financials is minimally negative.
- Michigan Sentiment posts a nice January bounce.
- Europe has its reasons for backing off its Iranian oil embargo plans. What are our reasons for not taking Canada's oil, producing our own, creating thousands of jobs, giving people incomes to buy homes given low rates, and lowering the price of oil and gasoline?
- Earnings and economic data for the short week ahead, and still we see plenty of upside patterns that we will take advantage of if they show the moves.
- S&P downgrade portend an EU recovery? When S&P downgraded the US our economy rebounded.
- Quantitative Easing III likely on the way: it is an election year, Bernanke knows which side will preserve his job, and his henchmen are laying the groundwork.

A backend loaded news week overcomes some pretty negative news and holds up just fine.

Monday is Martin Luther King Day, so the financial markets will be closed. I was worried about that because there may be something happening in Europe over that long weekend. While we will be closed on Monday, other markets will be open and we might be behind the curve. That could lead to some significant selling on Friday in anticipation that something may happen. As it turns out, this morning our friends the French let slip that S&P would downgrade the credit of seven European nations (one being France) from AAA to AA+. They stole S&P's thunder, but it did not matter. Reuters carried the story and the news was out. As a matter of fact, I am glad France did this.

Futures were somewhat lower because JPM missed in its revenue guidance, and that pull a pall across the market. Financials had been moving up well, and this news knocked them back. But that is okay; it is a normal profit-taking day after a good run higher. This was not carnage for JPM or any of the other financials. It did have futures trading under water, but not desperately so. Then came France spilling the beans about the S&P downgrade. When that news hit, futures really tumbled. When the market opened it continued to fall to the downside, looking for a bottom after this news.

What would have happened a couple of months ago? The Dow would have dropped 300-400 points easily. The Dow was down, but it only fell 160 points on the low. That was no 400 points drop. I have seen 400 points drops, and this was no 400-point drop. Indeed, the Dow reached down and tapped at the 20 day EMA which is coincident with the late-October peak. It tapped it and recovered beautifully off the lows to close down about 50 points. Great action. What was that? I said great intraday action.

This was bad news, but we all knew it was coming. We have been dealing with the PIIGS for over a year now. We all knew there were problems and knew nothing had been done. There has been some deft kicking of the can down the road, but nothing major. Mind you, the ECB did finally get in the game. Mr. Draghi has started to cut rates, and a lot of the pundits have been saying that the ECB helped the EU avoid a catastrophe. Maybe that is the case. Maybe they flooded enough liquidity in there to get things thawed out a bit. We do know that the dollar LIBOR has dropped for the first time in months. It went from below 20 to 58. Now it slid back to 57. I can live with that. There is a little improvement, and things are loosening up in Europe. So, timely as ever, S&P comes in and downgrades. France and Austria were knocked down a notch. The knocked Italy, Spain, and Portugal down two notches. There was an expected downgrade, but there is always a reaction to that harsh reality slap in the face, even if we all knew it was coming. That is what we saw from the market on Friday. Again, even though we have been dealing with this for over a year, it is good to see that the rating companies finally got in and let us all know that there is truly a problem in Europe.

Europe is probably going into a recession. It is likely already there, and it may be an ugly one. But it is taking steps to improve liquidity, and hopefully it will expand their debt enough to float them out, similar to what we have done in the U.S. That may lead to horrible inflation down the road. I do not know for sure. I have a pretty good idea, but the Fed keeps saying it will not happen. So we stick our heads in the sand, believe, and buy stocks. That is apparently what happened on Friday.

Stocks were down, but then after a half hour in the day, Michigan Sentiment came out at 74 versus the 71.2 expected. That helped turn the market back to the upside. Anything over 70 is good. It was 69.9 back in December, and this is the first read from January. That looks solid. Never mind that the trade balance was a bit worse than expected. Export prices fell again. We can live with that, too, I guess. It was the Michigan Sentiment that helped turn the market back to the upside. Indeed, while stocks did not ever recover to positive, they did not do badly. It is more of that low to high action that is the hallmark of this current rally.

Even on days were it is up, it starts low and finishes high. It is able to pull it off. There is more of that bullish bias start the New Year and the "January effect." Funds are looking to put money to work. They always do at this time of year in order to get the big percentage gains for the smaller stocks. Things in the US are improving, and they want to buy the small stuff, let it appreciate, and then get good gains to start the year. Then they can back off and coast as the year moves ahead. Why? A lot of people are saying this may be a tough year for the economy even after it gets a good start to the end of 2011, as we saw back in 2010. A good finish, but it cannot keep the mo. We will have to see what happens there, and I am still worried about it. I was saying that four and five months ago. I was worried about what would happen after the first of the year.

For now, the market is moving higher. For now, that is a good omen for the economy. The small caps are continuing to move up, and that is always a positive. We do not want to go against the market. That is why, despite our misgivings in our gut about what may happen in 2012, we defer to what the market is showing with many stocks in position to buy. We have been taking advantage of them, and they have been working for us. Not going to complain about that. Sure, there are clinkers out there. They always happen. We are coming into earnings season, we have pre-announcements and warnings, and there are stocks gapping upside and downside. You are in the game, and that will happen. But we have a lot of great positions. We never put everything in one position. That is just money management. You spread your trades out, you make no trade bigger than a certain percentage of your portfolio. You manage your money, in other words, and you will make money.

In any event, we are seeing this low to high action, which is positive for the market. That is a positive for this rally continuing. Even in the face of some very negative news out of Europe, this market was able to recover off of its low. The Dow was down 160 points, coming up over 100 points off of its low to close. Buyers using dips to move in. As a result, the indices cut their losses significantly.

SP500, -0.5%; NASDAQ, -0.5%; Dow, -0.4%; SP600, -0.9%; SOX, -2.1%

Not a great day, but not the carnage that could have been. Again, you have to look at the low to high action, still showing a bullish or upside bias to the market even on a negative day.


OTHER MARKETS

You can see a response to the European news in the other markets.

Dollar. 1.2676 versus 1.2825 euro. The DXY0 looks like the dollar was down, but it was not down against the euro. These are lows of the euro versus the dollar we have not seen since 2010. Against the other currencies, the dollar was a bit weaker, so the DXY0 overall was lower. The DXYO was higher on Thursday when the dollar was lower against the euro. You see how it works; it is not just the dollar/euro that moves the DXY0. Overall the dollar continues its way higher, testing the late-September/early-October high as it continues to trend up the 20 day EMA. Indeed, it traded below the 20 day EMA intraday and recovered to hold that support level. The dollar continues its strength. We would love to see the dollar strengthen. We are all tired of our dollars being worth less than they were three years ago or even longer than that. Even George W. Bush's presidency pursued a somewhat weak-dollar policy. He just was not so open about it.


Bonds. 1.84% versus 1.97% 10 year U.S. Treasury. Bonds had a rip-roaring day. Big moves. Bonds bouncing back to the upside. It was a bit of a fear trade with the downgrades from several EU countries. Some money fled to the U.S. This was a huge move for the 10 year, and it will probably give some of that back as the news is absorbed into the market.


Gold. 1,631.10, -16.60. Gold was down on the day. Gold has been an enigma. It looked as if it wanted to break higher, but it broke lower. It looked like it wanted to break down, and then it broke higher. Now it is holding over the 200 day EMA, indeed, bouncing back up off of that level intraday on Friday. Gold is a jumbled pattern right now. At some point we will get a good buy in gold. We are just waiting for it to show up. This pattern is hard to love right now, but I will note one thing. There was a triangle, a breakdown. Now you have a double bottom at roughly the 78% Fibonacci retracement. In theory, you could get a move back up to the prior high off of this double bottom. That is something to look at, but it is such a jumbled pattern.

It did come back from a lower low that undercut that September low. Whenever you see that false breakdown and a recovery, that is a positive. People used it to step in, and it held right on top of the April to July consolidation. It is a logical point for it to hold again as it did in September. When it undercut it again and did not fail, that showed there were buyers still here. I still think it could roll over at this point. There is resistance where it is right now. A gap higher from early August, the peak in October, and then the lows in November. It has resistance; we just have to see if it falls back down. Then it would have to test this old low again that has proven to be support thus far. If gold continues higher from here, it is probably a trade up to the old high. That is what you shoot for with a double bottom at the lower Fibonacci extensions.


Oil. 98.68, -0.29. Oil had something of a rough week. A rough week in that it was really holding up well thanks to Iran wanting to close the Strait of Hormuz and saying it would do so if there were economic sanctions against it. That ratcheted up the price of oil. It looked like it was ready break above that November peak, and then Europe said they could not impose that oil embargo for another six months. Why? Some EU countries may not be able to replace that oil. Frankly, their economies are in the toilet. If they had to go elsewhere to get oil, it would be more costly. Then Iran said it will close the Strait of Hormuz, and that would raise the price of oil even further. That would put more pressure on the economies, and did I mention they were already in the toilet? That would probably flush the toilet and then we would have a bunch of the PIIGS rooting around in the sewer. It did not want to take any action to exacerbate the problem for its member nations. It said they did not like what Iran is doing. If it gets a nuke, it will be a real problem. But if they go down in the toilet, that is a real problem, too. The old, "I will save myself first and then worry about everyone else later" mentality. We are looking at six months down the road.

That is a long explanation to say that oil fell, but it did not fall out of its pattern. Not at all. It tapped the 50 day EMA on Friday and bounced to a doji. Looks like it wants to bounce right back up.


THE NEWS

TO VIEW THE ECONOMY OVERVIEW CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

Why are we not creating readily available jobs, lowering oil costs, and putting more money in American pockets?



TECHNICAL SUMMARY

The internals were lackluster, but that is what you would expect.

Volume. -0.5% NASDAQ; +3.8% NYSE. NASDAQ's volume did not increase on the worries out of Europe. Not bad. It did rally on the NYSE, but it also did so as the indices recovered off of their lows. Stocks in general bounced off their lows. That is positive. Buyers step in and drive things back up on higher volume. That is a good indication. When we look at the charts, you will see where they bounced off of. That makes is look even better.

Breadth. -2:1 NASDAQ; -1.9:1 NYSE. Breadth was not that great and not that bad. No major problems, and that goes along with what I talked about earlier with the reaction to the news.


CHARTS

SP500. SP500 just undercut the recent support level, the flat plateau to begin the year, and it rebounded off of that 10 day EMA. It lost the move over the October peak temporarily, but recovered it on a closing basis. Still good action. It reached down, reversed, volume was up. Buyers came in and supported the SP500, and likely those financials were holding it up as well. They still make a difference on the SP500.


NASDAQ. NASDAQ had decent action as well. It sold off, it recovered. It is holding the line, although it is still below the October and November peaks. It is doing what we want and playing along. You could say we have something of an island reversal. It could end up being that. We have a gap higher and a cluster at the top. It could be primed to gap lower; it all depends on earnings. It is earnings season now, and the question is how those big names will drive NASDAQ. The NYSE indices look good. Tech is not in a leadership position as far as its pattern is showing. It is not the time of year for tech to be a leader, so the fact that it is following along is a positive. It would be even more positive if it was leading, but you take what you can get.


DJ30. On the Dow you can see it a bit plainer. It almost touched the 20 day EMA and reversed, and it closed to hold above the 10 day EMA. It, too, saw volume increase as it rebounded and is in the next trading range up to the April and July peaks. Perfect action on the Dow.


SP600. The small caps were down on the day, but they tapped the 10 day EMA and bounced. That was also a tap at the October peaks. It held that level and rebounded, albeit modestly, along with the rest of the indices. It did no harm. It left itself in good shape to continue the move.


SOX. SOX lost 2% on the day. It is very NASDAQ-ish in its pattern. A gap higher, testing back. It could gap lower, and that would be all she wrote. After all, it is at the top of the range. It is walking on thin ice. It is holding above the early-December peak. Maybe that will hold it up. By the way, that is also coincident with the high from September. Maybe that will hold it and bounce it. Note that September looks very similar with the gap higher, the gap lower, and then it sold off. That was an island reversal. Here we have the gap higher and it is sagging. We have to wait and see if the SOX can hang on. Similar to the NASDAQ, it is not an index you would anticipate to lead at this time of the year. But we are seeing several semiconductors stocks performing well and continuing to perform well as others try to step up. It is a totally mixed sector right now, and we will see if they can continue to hold the line.


LEADERSHIP

Financial. The financials were knocked back on JPM's numbers. Next week there is a basket full of earnings. That includes WFC, one of the nice performers in this group. It has not just been the big names, but the regionals such as STT. It was performing quite well. They all got knocked back on Friday, but it was nothing major. We will look for a little more test, and maybe the earnings season in these stocks will give them more of a test. Next week, a lot of these will report, as noted. After that, maybe they could have the impetus to move to the upside.

Technology. AAPL looks like there is a little flag and it wants to break to a new high. GOOG has come back, and we will have to see. It has a more bearish flavor to it, but it could hold the line and make a break to the upside. CERN is trying to hang on and rebound. NTGR is showing a lot of life. It is testing again after a nice break to the upside. Unable to break through the November and December peaks, but it looks like it wants to do it this time, so it will have room to the upside. Tech is not looking great overall, but there are stocks that look really good. We want to take advantage of those.

Drugs/Healthcare. JAZZ surged to the upside, and now it is coming back for a test. BABY had a break to the upside, and now it is coming back to test. We are seeing a lot of this in drugs as well. OFIX was surging higher last week. Once again, many sectors are performing well.

This week I went over how well building materials have been doing. Home builders, engineering firms, materials, and construction are all performing better. That is the "stuff" that helps stronger economies. We did not have these kinds of moves in these kinds of stocks in the other failed attempts for the economy to move higher. In 2010 there were three quarters of 3% and almost 4% gain in GDP that evaporated in the wind. It could not hold because there was not any substance. This time we have some substance going. That is why things could be better in 2012. Maybe it will not fizzle as it did in 2010 and 2011. It remains to be seen. I am still in the Missouri "Show Me" State. You have to show the good moves, but it could do it. It is an election year, and many strange things can happen.


THE MARKET

SENTIMENT INDICATORS

VIX: 20.91; +0.44
VXN: 21.38; +0.59
VXO: 20.13; +0.95

Put/Call Ratio (CBOE): 0.74; -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: 51.1% versus 49.5%. Back up but hanging around 50%. Over the past three months a steady increase. Still probing the overdone range and could be part of the picture that tops out the current in January, but it is not there yet. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. 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: 29.8% versus 30.5%. Back and forth around 30% where it has flat-lined for 6 weeks. Bears remain skeptical. Skeptics in the face of a move is a good sign the move continues. Lower but not anywhere near suggesting investors are carefree. The average the past month and more is 30%. 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: -14.03 points (-0.51%) to close at 2710.67
Volume: 1.656B (-0.54%)

Up Volume: 586.93M (-533.07M)
Down Volume: 1.03B (+517.52M)

A/D and Hi/Lo: Decliners led 2.1 to 1
Previous Session: Advancers led 1.6 to 1

New Highs: 40 (-24)
New Lows: 24 (0)


SP500/NYSE

Stats: -6.41 points (-0.49%) to close at 1289.09
NYSE Volume: 734M (+3.82%)

Up Volume: 853.11M (-1.407B)
Down Volume: 2.74B (+1.08B)

A/D and Hi/Lo: Decliners led 1.87 to 1
Previous Session: Advancers led 1.6 to 1

New Highs: 108 (-7)
New Lows: 24 (+9)


DJ30

Stats: -48.96 points (-0.39%) to close at 12422.06
Volume DJ30: 161M shares Friday versus 128M shares Thursday.


TUESDAY

Next week is a short week, but there is a lot of data. It starts with New York Empire Manufacturing on Tuesday. On Tuesday we also have Industrial Production and Capacity. PPI on Wednesday. On Thursday there are Initial Claims, and we got close to 400K this week. We also have CPI, but it is not expected to do much. Housing Starts, Building Permits, and the Philly Fed are all very important. Existing Home Sales are on Friday.

Some big news, but all of it will pale in comparison to the flood of earnings that come out next week. As noted, there are a lot in financial and lot in tech. You name it, they will be announcing. We have had a lot of pre-announcements and some surprises to the downside. A lot of those, but we have also had some great ones to the upside. We are looking for the market to continue its upside moves to have that upside bias even as the numbers come out.

Remember, often in earnings you get that initial surge in the first couple of weeks of earnings. Everyone thinks the results are great and some big names drive the indices higher. Then investors get the picture, and they realize things are okay but not that great. Then you have the fall off. We have all been there. In July things took off, and then it was not so great. But then the earnings came back late. Investors thought it was pretty good, but it was not enough to hold. In April things were not so great, but then things took off. They were better than they thought.

We are coming in a little hot. We get a couple of weeks of good earnings announcements as we are coming in hot, and then we go down. In July we came in hot and went down. In April we came in hot and went down, but then we were back up. We could get that shakeout in the financial area. We have stocks in position to test, and some are already testing, setting up for new moves.

I think we have a couple more weeks to the upside. Will we take a bunch of new positions? Not really. We have some great ones that are moving. If the market be continues up, we will bank more profit on them just as we did this past week. But we can still take new positions. As a matter of fact, we found a bunch of plays this week and weekend that we can put money to work in. Some of these already have the news out, so we do not really have to worry about them. I always like that. The news is out, they have gapped to the upside, and we are looking maybe for a continuation move off a breakaway gap. Those are always nice.

That is what I like about earnings. Even though we do not always stay in the stocks during earnings season, it sets up new moves either upside or downside. We love playing those breakaway gaps after the news comes out. We may get a gap fill. If you do not, you will have more upside. Or if it goes the other way, you will have more downside. Even in earnings season we get opportunity coming into the numbers and after the numbers.

We will just take what the market gives. Right now there is a synergistic, positive combination of better economic data, earnings that are pretty good, pre-announcements that are worrisome, and then the sense that maybe Europe has it under control. S&P came out with downgrades, but S&P is always late to the party. When S&P comes out, maybe things are better. What happened with the U.S.? S&P downgraded, and then the economic data started to improve. Could Europe now start to improve? It very well could be. With that in mind, we will not turn down opportunity as it presents itself. If a stock is in good position, is not extended, has room to run, and we can take advantage it, then yes, we will. I will not say," Yes we can" because I might throw up if I did. I will say yes, we WILL take advantage of that.

I want to mention that the Fed is making some noise. There was another Fed FOMC member out today talking about the worry the Fed has that the economy will not be able to sustain this move. There are pundits positing that the Fed is thinking about QE3. Why on earth would we need QE3 if the data is improving as it has been? We have data that is improving that was not on the other attempts. Like I said, the materials, the housing, and the home builders stocks are improving. That is something we have not seen before. It makes this look a bit more sustainable. Why would we need QE3 and more inflation pressure? Because it is an election year.

Ben Bernanke is the most political Fed chairman we have ever had. He knows he is gone as soon as any Republican is elected. Rick Perry said something about hanging him in Texas. I do not know what he was talking about. Ron Paul would just get rid of the Fed altogether. You get the picture. He is siding with the guy who will keep him, and it is an election year. The economy has been showing signs of improvement. It probably does not need any more stimulus. We do not need it for the inflation reasons, that is for sure. We may just get QE3 anyway to pump up those financial assets even more. We all realize what happened with QE1 and QE2. There is 1 and 2, and now there is the selloff as we had in 2010. And we are looking for number 3. Perhaps that is why the market has been moving up in anticipation of that. It could be. Do not be surprised if we get QE3. If we do, stocks will take off. Of course we will make a lot of money if that happens. We better make a lot because we will have to worry about inflation. We can make a lot and then buy some gold with the profits.

Do not be surprised if that happens. That is my new thought for 2012. I am not too much into predictions; I am just talking about the possibilities. It sure looks like the Fed is setting it up. All I am doing is reading what is out there I am not predicting. The Fed is setting up QE3 because it is an election year. The Fed wants their guy, the guy in power, to get reelected. At least that is what Ben Bernanke wants. Then he will keep his job and hopefully, in his mind, he will go down as the guy who saved us all from the brink. We will see what happens.

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


Support and Resistance

NASDAQ: Closed at 2710.67

Resistance:
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:
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
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
The 200 day SMA at 2658
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
The 50 day EMA at 2620
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
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 island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2441 is the November 2011 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 1289.09
Resistance:
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:
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
The 200 day SMA at 1258
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
The 50 day EMA at 1248
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
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 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 12,422.06
Resistance:
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:
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 50 day EMA at 12,061
The 200 day SMA at 11,959
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
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

January 9 - Monday
Consumer Credit, November (15:00): $20.4B actual versus $7.0B expected, $6.0B prior (revised from $7.6B)

January 10 - Tuesday
Wholesale Inventories, November (10:00): 0.1% actual versus 0.6% expected, 1.2% prior (revised from 1.6%)

January 11 - Wednesday
MBA Mortgage Purchas, 01/07 (7:00): +4.5% actual versus -3.7% prior
Crude Inventories, 01/07 (10:30): 4.958M actual versus 2.209M prior

January 12 - Thursday
Initial Claims, 01/07 (8:30): 399K actual versus 375K expected, 375K prior (revised from 372K)
Continuing Claims, 12/31 (8:30): 3628K actual versus 3600K expected, 3609K prior (revised from 3595K)
Retail Sales, December (8:30): 0.1% actual versus 0.4% expected, 0.4% prior (revised from 0.2%)
Retail Sales ex-auto, December (8:30): -0.2% actual versus 0.3% expected, 0.3% prior (revised from 0.2%)
Business Inventories, November (10:00): 0.3% actual versus 0.5% expected, 0.8% prior
Treasury Budget, December (14:00): -$84.0B expected, -$78.1B prior

January 13 - Friday
Trade Balance, November (8:30): -$47.8B actual versus -$44.0B expected, -$43.3B prior (revised from -$43.5B)
Export Prices ex-ag., December (8:30): -0.2% actual versus -0.2% prior (revised from -0.1%)
Import Prices ex-oil, December (8:30): 0.1% actual versus -0.2% prior
Michigan Sentiment, January (9:55): 74.0 actual versus 71.2 expected, 69.9 prior

January 17 - Tuesday
New York Empire Manufacturing, January (8:30): 10.0 expected, 9.5 prior

January 18 - Wednesday
MBA Mortgage Index, 01/14 (7:00): +4.5% prior
MBA Mortgage Purchase Index, 01/14 (7:00): +4.5% prior
PPI, December (8:30): 0.1% expected, 0.3% prior
Core PPI, December (8:30): 0.1% expected, 0.1% prior
Net Long-Term TIC Fl, November (9:00): $4.8B prior
Industrial Production, December (9:15): 0.5% expected, -0.2% prior
Capacity Utilization, December (9:15): 78.1% expected, 77.8% prior
NAHB Housing Market , January (10:00): 21 expected, 21 prior

January 19 - Thursday
Initial Claims, 01/14 (8:30): 387K expected, 399K prior
Continuing Claims, 01/07 (8:30): 3613K expected, 3628K prior
Core CPI, December (8:30): 0.0% prior
CPI, December (8:30): 0.1% expected, 0.0% prior
Core CPI, December (8:30): 0.1% expected, 0.2% prior
CPI, December (8:30): 0.2% prior
Housing Starts, December (8:30): 670K expected, 685K prior
Building Permits, December (8:30): 680K expected, 681K prior
Philadelphia Fed, January (10:00): 10.0 expected, 10.3 prior
Crude Inventories, 01/14 (11:00): 4.958M prior

January 20 - Friday
Existing Home Sales, December (10:00): 4.57M expected, 4.42M prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

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

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

Solid Jobs Report Reflects Economic Improvement, But...

SUMMARY:

- A solid jobs report reflects the economic improvement, but stocks did not buy into it, at least on Friday.
- Rare revisions to the unemployment rate, the simple are you employed or not survey, raises eyebrows and questions about data accuracy and perhaps explains the market's lukewarm response.
- Dollar and bonds still acting as a safe haven for European funds.
- Stocks close the week with a flat session, unable to build upon the Tuesday, start of the year rally.
- Boat show indicator starts to turn positive but job cuts in 2012 are already high.
- Market still sports many levels of positive patterns supporting a continued move toward the prior highs.

Cool response to a decent jobs report suggests investors don't believe everything they are told in an election year.

Looking at the morning chart of the SP500 futures, you would not have thought a good jobs report was released. Looking at the chart of the day, it also does not look like much is happening. SP500 actually closed lower on the session. That somewhat belies a jobs report that was solid. It was not great, but it was pretty good. It topped expectations at 200K nonfarm payrolls, 50K more than originally anticipated. There was a revision to the downside in November by 20K. When you factor in some upside revisions in October, it was just an 8K job write down between the two months. The nonfarm private payrolls topped expectations, coming in at 212K. That topped the 170K expected. The prior month was also revised down to 120K from 140K.

The unemployment rate dropped 0.2% to 8.5% after it was revised up to 8.7% in November. It is rare to have an upside revision. It is strange because the unemployment number is completely based on a household survey. What reason would there be to revise when it is based on actual calls they made? That put the entire read of the unemployment rate into an even more skewed and skeptical eye than usual. A lot of people think there is some monkey business going on with the employment data. It just so happens that we get into an election year and suddenly the unemployment rate drops substantially below 9%, where it has been for years. It was pretty strange to have a revision, even if it was to the upside. As noted, it brought some skeptics out, and that was reflected in the morning action.

Looking at the intraday chart, you do not see the kind of enthusiasm you would expect this report to generate. There was more good news on the report with the average workweek. It bumped up to 34.4 hours when it was expected to hold steady at 34.3. It has been stagnant at 34.3 for months. What does a tenth of a percent bump mean? It reflects 200K jobs. Lo and behold, there are your 200K jobs. It was a solid report, and it reflects the improvement in the economy over the prior four months just as we felt it would. We also felt that given a decent, solid report, the market might want to bump higher. It might break it free to move to the upside after a good surge on Tuesday, and then a drift for the rest of the week. It continued to drift.

When the news came out, there was an initial pop. Just before the embargo was released, you could see the SP futures jump to the upside. The news hit a bit early. Before CNBC or Bloomberg got the news out, it surged to the upside and then fell back. Futures were up to begin. They got a bit more juice when the news came out, but then they fell back down. As the market opened up it traded lower. It recovered but then range traded for the rest of the day and closed virtually flat. Once again, the growth sectors were leading the way. They lost one of their important components, the SP600, as it turned in a negative session. As you recall on Thursday, there was the triumvirate of NASDAQ, SP600, and the SOX all posting solid gains in a growth renaissance of sorts. But it was not so much of a renaissance on Friday. It was a bit disappointing after a couple of months of solid economic data and a week that showed continued economic improvement. Perhaps some of the news was already built into the gain in the market that we saw on Tuesday.

Even with the disappointing action on Friday, we still look at the market overall in position to continue the moving higher, with SP500 clearing the October peak and then trading up toward the 2011 highs from April, May, and July. We see too many good patterns out there from too many solid sectors to think otherwise. It is interesting because the jobs report somewhat reflects this. There are positives on every sector of jobs growth. It was not huge growth, but construction gained 17K. I believe they said it was the first gain since 2006.

There were widespread employment gains. There are widespread good patterns in the market. With that kind of support for this move, you tend to have continued upside moves -- at least for the near term while those patterns somewhat consummate themselves. After that maybe it rolls back over. A lot of people said we could see similar action in the economic data as we saw in 2010 and 2011 (as I have been saying for a couple of months now). Improvement in late 2010 and then a peak and a decline in 2011. Lo and behold, I am reading all week, especially on Thursday and Friday, that we will have that same kind of action. A weakening 2012 before it picks up once again. But it all remains to be seen.

What we are worried about now is what we are always worried about. That is what is happening right here and right now. We keep an eye on the horizon, of course, so we can take what the market gives.


OTHER MARKETS

Once again the action in the other markets is getting somewhat turned around. Thursday the action somewhat behaving as you would think it would in a normal time. In other words, we had some improving U.S. economic data across the board, and we saw the dollar move higher and bonds move lower. That made a lot of sense. The dollar should strengthen if the economy strengthens. Bonds should move lower and yields should move higher if the economy is strengthening. It makes sense; you do not need the safety of Treasuries, you do not need to grab that yield. You put risk money out there to make a bigger return. Plus, money will be worth more down the road than it is now, so interest rates should rise. It makes sense (hey, something in economics actually does).

Dollar. 1.2730 versus 1.2788 euro. The dollar surged to the upside yet again. A big week for the greenback as it continues to break higher. There are still a lot of worries about what will happen in the eurozone. Will it break up? Will there be defaults? Will there be a smaller eurozone? Those clouds will continue to hound the continent as well as the U.S. markets through 2012. But the dollar was stronger because we have a stronger economy. And Europe still stinks -- I will admit that.


Bonds. 1.95% versus 1.99% 10 year U.S. Treasury. Bonds were surging on the session as well. The 10 year has been hovering around that 2% level. There was a sharp break. Bonds rallied and yields tumbled. That is the opposite of what they should be doing on strong U.S. data. Then again, we are not in a situation where the U.S. is making its own wake. We have to worry about Europe, and I think we will still have a real problem out of China. I think the economy will go into some collapse in different areas. Real estate over there is just primed, but that is another story. We have that European issue, and that will continue to attract European currency to U.S. Treasuries and the safe havens. Therefore we see bonds rally.

It is not just the banks putting the money over here. ECB overnight deposits rose to a record yet again. The banks are keeping the money in Europe. They are keeping it near at hand, too; they are not just shipping it to the U.S. and buying Treasuries in a carry trade (although some of them are). We may have a possibility of some improvement in Europe as money gets put to work over there. I hope that is why they are putting money in the ECB overnight deposits. Then it is close at hand and when they need it they can use it and invest it instead of just parking it in the U.S. and doing that carry trade that U.S. banks did for so long. They borrowed for 0% from the Fed and then bought bonds and got a guaranteed return. There is still money going into U.S. bonds even with a stronger U.S. economy. That tells you there are still problems in the rest of the world, and they are seeking the safety of the U.S. Treasury market. As the dollar rallies, obviously they are buying U.S. dollars as well.


Gold. 1,617.30, -5.60. Gold was off slightly. Gold trades in many different markets and closes at different times. Looking at this chart, it looks like it is up and down. Do not get too bent out of shape about the actual closing numbers; it is the trend that matters. Here we have a doji below the 200 day EMA. It is at other resistance as well. It is right at the resistance from the September and October lows and the consolidation back in August. It could still fall from here. I am still looking at a downside play in gold.


Oil. 101.77, -1.45. Oil took a modest downside day. Still in great shape to make a new break higher. It is trying to put in a higher low near the 10 day EMA at the top of its range. It bounced up and has come back to test. If it puts in this higher low, it is in excellent position to break to the upside. No reason oil should fall now, despite troubles in Europe and despite troubles in China. That is, unless they become front-burner, raging issues. Iran is causing a lot of trouble in the Middle East, and that is helping prop prices higher despite a larger than expected build in the U.S. inventories announced on Thursday.


TECHNICAL SUMMARY

Volume. -7.5% NASDAQ, 1.7B; -16% NYSE, 648M. Volume fell off the table sharply.

Breadth. -1.2:1 NASDAQ; -1.2:1 NYSE. Breadth was mealy-mouthed as well.


CHARTS

SP500. We had a couple of higher lows formed in late November and mid December. You had a higher high, and now it is trying to break over the October high on SP500. We had a consolidation, a big break to the upside on Tuesday as the New Year trade got underway, and then pretty much a lateral move to a slight drift higher to end the week. That leaves the SP500 just below the October peak. October clocks in at 1285 on the high, and SP500 closed almost 1278. It is right there. It has put in higher lows, and it is consolidating laterally. It is in good shape to make the break higher.

The question is whether it will get the impetus to get that break. A lot of patterns still look good. The financials have been improving. They took the day off Friday, and that is why we got no traction on the SP500. Overall, its position is one of strength and there are still good patterns to push it and the other indices higher. This coming week we may get a little more lateral move. Maybe a slip back, or maybe not. It looks good either way. We could get a little giveback or just a new break to the upside. We look for it to take out that October peak. If it does, that is a positive sign for the next week or two for a rally up toward those April and July peaks. We are looking for a good, sharp rally. Then we may get the pullback. Some people say 1300 is the peak, and it may be. We just have to take what it gives and let the play run. For now we have the upside bias that we wanted to see. It is playing out the way we wanted it to.


DJ30. DJ30 was down on the day, but it was a modest loss. It broke to that new high. It is testing it as the 10 day EMA rises above it. I think when the 10 day gets there, it will make its move. It has a good shot to get to 12750. That is the double top from July. That would be a very good move for it. That puts it up another 400 points or so. That can make us money on the positions we already have that are already logging good gains.


NASDAQ. NASDAQ edged higher. It was one of the market leaders again, although it did not make much headway. It is above the 200 day EMA. It is at other resistance from way back, some other gap points March and January. It is still roughly at the early-December peak. It has moved just past it, but it has a lot of resistance still overhead. It is fighting, but it is making some moves, getting help from stocks such as AAPL, GOOG, NTGR, and other big name techs that are moving to the upside for now. They are showing good momentum and carrying this pre-earnings into early earnings rally to the upside.


SP600. The small caps could not make it a threesome when it came to the growth indices moving higher again. They faded back 0.3%. Still in this lateral move. Looked like they wanted to make the break on Tuesday. Tried it, did it, but could not hold it. Now they are still measuring it, moving laterally over the 200 day EMA and right at that late-October peak. In excellent position, as with the Dow, to continue to the upside.


SOX. SOX was up. It was a market-leading kind of move, although it was a weak move. There were semiconductors moving, breaking higher off of the lows in their patterns. That is positive. This will help. The SOX is still mired in its trading range, but it is trying to make a move to the upside. If it does rally higher over the next couple of weeks, the rest of the market will benefit from that. I am not saying it will make the breakout even over the November peaks, but it does not have to for us to make money. If it merely moves to those levels, that means the rest of the market will break above its October peaks and go into that April-to-July trading range and bounce up toward the top of the that range. Then we make some nice money on this end of 2011/beginning of 2012 rally that we have been looking for and have been playing. Why have we been playing it? The individual stock patterns have been saying please come in and buy us because we are going higher.


LEADERSHIP

I have been talking a lot about stocks that are forming good patterns and moving higher. Stocks that have done so already and others that are coming up to fill in the void and provide that extra support for the momentum to the upside. Those waves of new buys coming in. That is always the lifeblood of any rally. It has to live off the initial stocks that move higher, and then it has others step up to take the baton, so to speak, and continue the move.

Financial. Financials have finally started to step up over the past week. The gap higher on Tuesday started money into the sector, and then they continued up through Thursday. Friday was not their day. They were off, but still just modestly, and holding their gains. JPM was off slightly, but it had a very good week under its belt. WFC is the same situation. A great week to the upside after clearing the 200 day EMA a couple of weeks back and testing it. It is moving quite well. Financial institutions have joined the party and are moving up. If they continued to do so, the SP500 makes the break over the October peak, and we continued this rally up near those April and July peaks.

Medical/Healthcare. Healthcare is not getting a lot of play but it has been doing fine. JAZZ had a nice 10% move up, making a super break to the upside. MYL is testing back this week, but it has had a great run under its belt so far. TEVA has rallied up to its 200 day EMA. Looks as if it wants to continue on.

Retail. Retail has had its home runs and its strikeouts, but it is also holding up well and continuing to the upside. Many stores are doing the upside move, continuing up from Thursday. PIR continued its move after a great blast upside on Thursday. We took some gain off the table for LULU on Friday because it ran right up to its upper trendline. Was not quite to our target, but it was very close. After a nice move up for the week, we decided to bank some gain before next Monday just to have it in pocket. SCSS broke to the upside, looking good. Very solid move. Retail is hanging in there. It is not only those patterns that have already moved, but we see stocks that look like they could move as well. GES could make the upside break as well and continue to provide support to the market and to this sector overall.

Technology/Semiconductors. Technology has tried to step up and lead over the last few days. GOOG is pulling back, but it is at the 10 day EMA. It might give us another buy for a continued bounce to the upside. AAPL was churning away again, moving up another 4+ clicks on the session. SNDK looks like it was trying to break higher out of its triangle. Other chips are looking solid as well. ALTR looks like it might try to make a break to the upside. ATML is moving up off of its lows, breaking higher on some solid volume. During the week, MU gapped higher and rallied up to its 200 day EMA.

These are some of the chips I am talking about. While the stocks overall may not look that great, it is getting some support from various chips. Those could really add to the move to the upside over the next couple of weeks and put some life into this market (something more than just this gradual drift we have seen). I could show you a lot more, but I need something left to put on the report. It is where these stocks are set up in these bases. These rounded bottoms or trading ranges -- whatever you want to look at. There are many different patterns out there. We are seeing a lot of little triangles at the bottom of a selloff. They are setting up to move higher. We see them in many sectors, just as we saw jobs growth in many sectors.

I cannot emphasize enough what a positive this is for the market. You have to have a lot of stocks in position to move up, and in a staggered position. It is like buying fruit. If you buy a dozen peaches and they are all ripe, they will start to rot before you can eat them. Or if you have some that are very ripe and some that are real really green, you may not be able to eat all the ripe peaches before they rot, and then the others you have to wait a week before they are ready. But if you stagger them, then you can eat peaches constantly and enjoy them. The market comes up, these others ripen, they move, and you eat them. You grab the others as they come along and ripen. You get the idea with respect to how important it is to have several good sectors in position to move higher to keep rallies moving.


THE MARKET

SENTIMENT INDICATORS

VIX. The VIX is trading down to the low it hit two weeks ago. The market had a little struggle at this level. There is a support level here. It may try to bounce, and the market may try to consolidate a bit. When we look at the charts, you will see it is already consolidating. I am not putting too much stock in what the VIX is showing now. It is not an absolute correlation. A lot of talk about it, but the talk has not done anyone much good. Everyone has been saying the market is going to fall or what have you. Yet the market keeps rising. They said the Christmas rally would end, and then the market keeps going up. It is not going gangbusters, but it is showing that positive action. That is the low to high action. Once again we saw the market dip on Friday and then it recovered as bids came back. They did not knock the cover off the ball, but they did come back in. It is a positive, though it was not raging. As long as the buy stays there my thesis remains in place that the market continues to move up.

VIX: 20.63; -0.85
VXN: 20.52; -0.88
VXO: 19.77; -0.37

Put/Call Ratio (CBOE): 0.96; +0.13

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: 49.5% versus 50.5%. Fading modestly on a week of consolidation ahead of the first of the year, but still well above the 45.3% from three weeks back. Still probing the overdone range and could be part of the picture that tops out the current in January, but it is not there yet. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. 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%. Right back up to the same level sported three weeks back as bears remain skeptical. Skeptics in the face of a move is a good sign the move continues. Lower but not anywhere near suggesting investors are carefree. The average the past month and more is 30%. 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: +4.36 points (+0.16%) to close at 2674.22
Volume: 1.693B (-7.54%)

Up Volume: 994.71M (-375.29M)
Down Volume: 676.22M (+239.24M)

A/D and Hi/Lo: Decliners led 1.24 to 1
Previous Session: Advancers led 1.55 to 1

New Highs: 43 (+2)
New Lows: 34 (+7)


SP500/NYSE

Stats: -3.25 points (-0.25%) to close at 1277.81
NYSE Volume: 648M (-16.17%)

Up Volume: 1.24B (-1.39B)
Down Volume: 2.28B (+670M)

A/D and Hi/Lo: Decliners led 1.18 to 1
Previous Session: Advancers led 1.52 to 1

New Highs: 107 (+1)
New Lows: 14 (-4)


DJ30

Stats: -55.78 points (-0.45%) to close at 12359.92
Volume DJ30: 131M shares Friday versus 158M shares Thursday.


MONDAY

Next week we will have more economic data, but I want to talk about a couple of other economic indicators first before I get into that. One of them is what I called the "boat show" indicator. The boat shows are just getting started now, and the New York one as has been underway. After a five-year decline in new boat sales, they are finally starting to see them rise. They have been on the rise since August 2011. During the recession, new boat sales fell 55%. Previously-owned boats declined only 7%. The pre-owned is the largest part of the market, but the new boats, just as in housing sales, are always important because it gives a better indication of the health of the market. If people are looking to buy new, they have the money and the confidence to do so.

There is an old saying in the economy that the luxury is the last to go down when the economy goes down and the first to come back when the economy comes back. Regardless of their size, boat sales are considered a luxury item. You need the extra cash to buy one. It is nice to see them improving in sales. We will have to see how the boat shows hold out, but that is a positive indication for the economy coming back. It flies somewhat in the face of the idea that the economy will go down in 2012. There are reasons for it to go down, but there are reasons to think it is on the comeback trail as well. The smaller boats are still outperforming the big ones. The small ones always come back faster. It will be interesting to see if the big luxury yachts come back this year.

Another important indicator is jobs. They were better on Friday, but there is another indicator out there. Already this year there have been 2,348 job cuts announced. Boeing has announced cuts. A solar company has announced cuts. And Pepsi will announce cuts as well. They will be significant. They will not be huge numbers, but already we are seeing job cuts as the economy is supposedly improving. That is something to keep an eye on as we move forward because jobs lag the economy. If we are seeing job cuts after seeing an improvement in the jobs numbers, that could indicate that we have seen the apex of the jobs recovery. Then we could start seeing it come back down over 2012, particularly if the economists saying that the economy will fall are actually correct.

As for the actual data next week, we have Consumer Credit along with Wholesale and Business Inventories. Retail Sales for December will be out on Thursday, and that will be big. Friday we have Michigan Sentiment. Those are the big ones for the week. That said, we have to go back and look at the market overall and what I anticipate ahead. It is basically what I have talked about earlier.

The bias is upside right now. There are plenty of good patterns in the market to continue the push to the upside. If we avoid any major problems out of Europe and any major problems from China, the market has a very good shot over the next 2-3 weeks of rising up into the initial rounds of earnings (starting next week) and putting in some good gains toward the July and even the April and late-May peaks. Again, that would put SP500 up around 1350. Plenty of room to run to the upside and make us a lot of money. We have great positions that are already moving. Indeed, we took just a bit of gain off the table on Friday. If we get some more days to the upside, even with this slow drift up, our plays are hitting or coming close to our targets.

As the market moves up, if it has another great surge as it did in mid December or late November, we will have plays hitting targets all over. That is exactly what we have been playing for. We will take partial profits on that, and then we will see how the market handles these peaks. If it struggles, and I think it might, we will book some more of the gain. We will leave a little bit there because if there is a breakout we want to be in those stocks. I have said it many times before: The market can run further than you ever think it could, either upside or downside. It can run more than you would ever rationally believe was possible. Why? Because the market always overshoots near term. Longer term it evens out, but near term it always overshoots. If it gets a good rally going, it can keep going and going. It has a tendency to do the opposite of what a lot of smart people think it should do -- or what your gut tells you it can do. If you rely on your gut when you are investing or trading in the market, you typically end up gutted.

Watch what the stocks are telling you. If they are saying "buy me" as MU said this week, then you buy them. If they bounce off of support such as BWLD did this week, you buy it. If you see a decent move or a decent pattern in a stock like FWLT and it starts to move, pick up some shares. If it works, you make good money. If it does not work, you have a good risk/reward point and you can get out of it. You are not hurt significantly. You have more risk to the gain than you have to the loss, and that is the way you play the game.

We have more exposure in great stocks now because we have good patterns out there. We will take advantage of it as long as the market continues. As Roy McAvoy said in Tin Cup, "You ride her till she bucks ya." Of course Roy was not that great a success. He was a great striker, but he did not have the mental aspect of the game. That is what you do by watching what the market tells you versus playing from your gut.

We will continue to watch what this market tells us. Right now I think it is telling us to continue buying. My caveat is that we may be getting to the point where we do not want to buy too many more stocks. We have a lot of good positions. If the market does rally up to the old highs and stalls, that will put our upside positions in with great gains for us. If we buy a lot of them ahead of the peaks, that leaves us in a position where we could be left high and dry when the tide goes out. We will play the stocks that have good patterns, that are not extended, and that can make us money in this kind of move. If we stay with stocks that are not extended, we will be fine.

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


Support and Resistance

NASDAQ: Closed at 2674.22

Resistance:
2676 is the January 2010 low and the December 2011 peak
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:
The 200 day SMA at 2660
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
The 50 day EMA at 2605
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
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 island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2441 is the November 2011 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 1277.81
Resistance:
1293 is the October 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:
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
The 200 day SMA at 1259
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
The 50 day EMA at 1239
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
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 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 12,359.92
Resistance:
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:
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 50 day EMA at 11,978
The 200 day SMA at 11,955
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
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

January 3 - Tuesday
ISM Index, December (10:00): 53.9 actual versus 53.4 expected, 52.7 prior
Construction Spending, November (10:00): 1.2% actual versus 0.5% expected, -0.2% prior (revised from 0.8%)
FOMC Minutes, 12/13 (14:00)

January 4 - Wednesday
MBA Mortgage Index, 12/31 (7:00): -3.7% actual versus -2.6% prior
Factory Orders, November (10:00): 1.8% actual versus 2.1% expected, -0.2% prior (revised from -0.4%)
Auto Sales, December (14:00): 4.36M prior
Truck Sales, December (14:00): 5.98M prior

January 5 - Thursday
Challenger Job Cuts, December (7:30): 30.6% actual versus -12.8% prior
ADP Employment Change, December (8:15): 325K actual versus 180K expected, 204K prior (revised from 206K)
Initial Claims, 12/31 (8:30): 372K actual versus 375K expected, 387K prior (revised from 381K)
Continuing Claims, 12/24 (8:30): 3595K actual versus 3620K expected, 3617K prior (revised from 3601K)
ISM Services, December (10:00): 52.6 actual versus 53.0 expected, 52.0 prior
Crude Inventories, 12/31 (11:00): 2.209M actual versus 3.899M prior

January 6 - Friday
Nonfarm Payrolls, December (8:30): 200K actual versus 150K expected, 100K prior (revised from 120K)
Nonfarm Private Payrolls, December (8:30): 212K actual versus 170K expected, 120K prior (revised from 140K)
Unemployment Rate, December (8:30): 8.5% actual versus 8.7% expected, 8.7% prior (revised from 8.6%)
Hourly Earnings, December (8:30): 0.2% actual versus 0.2% expected, 0.0% prior (revised from -0.1%)
Average Workweek, December (8:30): 34.4 actual versus 34.3 expected, 34.3 prior


January 9 - Monday
Consumer Credit, November (15:00): $7.6B prior

January 10 - Tuesday
Wholesale Inventories, November (10:00): 1.6% prior

January 11 - Wednesday
MBA Mortgage Purchasing Index, 01/07 (7:00): -3.7% prior
Crude Inventories, 01/07 (10:30): 2.209M prior

January 12 - Thursday
Initial Claims, 01/07 (8:30): 372K prior
Continuing Claims, 12/31 (8:30): 3595K prior
Retail Sales, December (8:30): 0.2% prior
Retail Sales ex-auto, December (8:30): 0.2% prior
Business Inventories, November (10:00): 0.8% prior
Treasury Budget, December (14:00): -$78.1B prior

January 13 - Friday
Trade Balance, November (8:30): -$43.5B prior
Export Prices ex-agriculture, December (8:30): -0.1% prior
Import Prices ex-oil, December (8:30): -0.2% prior
Michigan Sentiment, January (9:55): 69.9 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

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

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