If a Deal is Struck, Market has an Open Field

MARKET SUMMARY

- It could have been a lot worse after Plan Boehner fails.
- Small caps, mid-caps act like adults.
- Income and spending solid, Durables Orders solid despite Sandy. Maybe if the world did end on 12/21 December would produce some rip-roaring reports!
- With all our 'leaders' out of town, at least the weekend and through Christmas should be safe.
- Economic data not bad. QE4 in place. If a deal is struck, market has an open field.

Market mourns the demise of Plan Boehner, but it could have been a whole lot worse.


'What a filthy job.' Mel Brooks' 'Young Frankenstein'
'Could be worse.'
'How?'
'Could be raining.'

Thursday Boehner announced Plan B was flushed and the futures went with it. The night did not heal the hurt and futures remained substantially lower pre-market into the open. Boehner came out later and said he and the republicans were still ready, were not giving up, but needed the President and the Senate to come forth with something.

There was much rejoicing.


He is brave Sir Robin, Brave Sir Robin brave is he.
When danger reared its ugly head he quickly turned his tail and fled, brave, brave, brave Sir Robin!
(when they ate Sir Robin's minstrels there was much rejoicing. Yeah.)

Nothing was quickly forthcoming from the other side and so the market was left up to its own devices. There was talk we were going to face another debt ceiling dump or TARP-like tumble. Talk is cheap. You know what? It didn't do bad at all.

The market did sell but after testing the 20 day EMA, SP500 bounced back upside, albeit modestly, holding the 10 day EMA on the close. SP400 was stellar, bouncing off its 10 day EMA. Russell 2000 didn't even make its 10 day EMA before reversing for a modest loss. DJ30 bounced off the 50 day EMA and held decently as well. It was not all candy and nuts, but even NASDAQ bounced to close over its 10 day EMA after gapping to the 200 day SMA.

The market has definitely shown worse days than Friday. Perhaps it was the idea that after all of the posturing, name calling, whining, and frankly doing what their constituents voted for them to do, a deal would still be struck. Well, if that was the case I suppose the market would have surged back upside. Perhaps it was just making the best of it given it is Christmas, and as Hans Grueber said in 'Die Hard,' the markets were simply being of good cheer.


'It's Christmas Theo, the time for miracles so be of good cheer. And get me my detonators!'

Hans' last statement is the one to keep in the back of your mind: the market did okay on Friday, the last full session before Cliffmas, and while it can heal itself from that wound, any further trauma and the sellers might indeed take out their detonators.

As for the good news, however, besides the indices stemming the losses and actually rebounding off the lows, the data was not bad.


Economic data solid even with Sandy: Order more hurricanes along with QE!!

The economic reports were definitely palatable if not quite believable. Durable Goods orders surged on an adjusted basis in a month when Sandy was supposed to devastate orders after devastating the East coast. Didn't happen, at least if you look at the adjustments. If you don't adjust the data the orders skipped the Christmas rush and dove off the Fiscal Cliff already. The real numbers for orders were negative; they were just adjusted up to account for the season and Sandy. Remember: what happens when things are better than expected when adjusted for worse events - - the numbers get hugely distorted.

Hey, here is a thought: maybe we SHOULD have some more hurricanes or other natural disasters to help the economy. I mean our leaders think that food stamps are economic stimulus (the old unemployment creates employment theory of socialist economics). Man, if 12/21/12 had turned out to be the end of the world just think how strong the December numbers would have been!

But it is, after all, Christmas, and we are not going to hold too strong a light to the numbers. Why should we? After all Bernanke and the Fed have the market's, and by extension, Congress' and the President's back:

"If the economy actually went off the fiscal cliff, our assessment, the CBO's assessment, outside forecasters, all think that that would have very significant adverse effects on the economy and on the unemployment rate. And so, on the margin, we would try to do what we could. We would perhaps increase [asset purchases] a bit."
--Ben Bernanke, 12-12-12 press conference post-FOMC decision to implement QE4


In keeping with the Frankenstein theme.

Still, the economic reports were comforting if not totally believable.

Personal Income, November (8:30): 0.6% actual versus 0.3% expected, 0.1% prior (revised from 0.0%)

Personal Spending, November (8:30): 0.4% actual versus 0.3% expected, -0.1% prior (revised from -0.2%)

PCE Prices - Core, November (8:30): 0.0% actual versus 0.1% expected, 0.1% prior

Durable Orders, November (8:30): 0.7% actual versus 0.2% expected, 1.1% prior (revised from 0.5%)
Durable Orders -ex Transports, November (8:30): 1.6% actual versus -0.2% expected, 1.9% prior (revised from 1.8%)

Michigan Sentiment - Final, December (9:55): 72.9 actual versus 74.8 expected, 74.5 prior



OTHER MARKETS

Dollar. 1.3173 versus 1.3238 euro. Even with a ride over the Cliff looking more possible, the dollar rallied. This must be the most convoluted logic on earth: going off the Cliff pushes the US into recession. Republicans show no inclination to deal with the democrats, making a cliff dive more likely as evidenced by the stock market. Yet, because the rest of the world is so weak and co-dependent upon the US that the US dollar becomes a safe haven because the US economy might go into recession and thus impact the rest of the world's economies? Makes my head spin (or is it the wine I am drinking?).

Bonds. 1.75% versus 1.80% 10 year Treasury. Gapped up to the 200 day SMA with a doji. Safe haven trade, so I guess that makes some sense in relation to the dollar, but not really. I can see bonds rising. The dollar? Really?

Gold. 1660.00, +14.10. Rallied right back up to the 200 day SMA after holding at the same low as Thursday. Good bounce and how many times do you see an apparent breakdown reverse? Hasn't pulled it off just yet but it is giving it a shot.

Oil. 88.66, -1.47. Faded to the 50 day EMA after breaking through Wednesday. Why did it fall? If you listened to the journalism majors it was because the FCliff deal seemed more remote. How about the rise in the dollar? Higher dollar means less dollars needed for each barrel of oil. Hello? McFly?


'Back to the Future'


TECHNICAL SUMMARY

Internals.

NASDAQ
Stats: -29.38 points (-0.96%) to close at 3021.01
Volume: 2.485B (+48.45%)

Up Volume: 490.35M (-457.48M)
Down Volume: 2.31B (+1.558B)

A/D and Hi/Lo: Decliners led 1.95 to 1
Previous Session: Advancers led 1.5 to 1

New Highs: 44 (-50)
New Lows: 31 (+13)

S&P
Stats: -13.54 points (-0.94%) to close at 1430.15
NYSE Volume: 1.328B (+114.89%)

A/D and Hi/Lo: Decliners led 2.03 to 1
Previous Session: Advancers led 2.14 to 1

New Highs: 109 (-63)
New Lows: 28 (+5)

Dow
Stats: -120.88 points (-0.91%) to close at 13190.84

Volume: A throwaway day for the volume numbers as it was quad-expiration. Also moving to year end. Volume exploded but it just doesn't tell us much.

Breadth: After a nice 2:1 Thursday, -2:1 on both NYSE and NASDAQ Friday. Even Steven.


You're Even Steven


THE CHARTS

SP500. Sold to the 20 day EMA on the low then reversed to close near the 10 day EMA. This is not bad action given the news. SP500 did bump the down trendline from September this week and faded, but that is not fatal. Still not the greatest pattern, and the market was rallying in a holiday mode. It could be taken off track by the Cliff so it has to hold this level and continue upside or it likely starts to break down.


NASDAQ. Gapped close to the 200 day SMA on the open then recovered to hold the 10 day EMA itself. Below the 2011 up trendline again, but still trending higher. Could put in another higher low again and continue the move as it holds over the July peaks. Interesting.


Russell 2000/SP400. Nice action, reaching lower then reversing to the recent support and in good position to continue its assault on the September high at 869, just 21 points away.

SP400 midcaps tapped at the 10 day EMA on the low and rebounded nicely. Back below the September high but hardly in jeopardy. Both the small and midcaps are still very strong and acting very well.


SOX. Gapped to the 20 day EMA but reversed to close over the 10 day EMA. Below the 200 day SMA again but held up much better than I expected. Still the one to watch, or at least one of the ones to watch, next week as it tried the 200 day again just 3 points ahead.


DJ30/DJ20. Fell to the 50 day EMA, tapped it, rebounded. Lost 0.9% but that was much less than indicated on the day. That said, the pattern is trending higher but is still not one I love. It is rallying well, has room to rally, but the market must be like a good cornerback and forget about getting burned on the last play if it is going to continue the holiday move.

DJ20. Ignored the selling, held the breakout. Easily.


Summary: The market has rallied since Thanksgiving with a couple of tests. It broke sharply higher Monday and Tuesday on the third leg of the move. A good test and bounce once more and then Friday. The large cap patterns are not my favorite. They can, however, rise on QE4 and the holiday move if there is still a sense that a FCliff deal can be reached. Obama says he is optimistic it can be done post-Christmas. If the market takes him at his word then it can definitely pick up where it left off and rally up through late next week.


LEADERSHIP

Big names. AAPL gapped lower but reversed to flat. AMZN gapped but held the 10 day EMA in a tight range. EBAY showed a nice doji with tail over the 20 day. GOOG gapped lower as AMZN but held the 10 day EMA with a tight doji. That is a great pattern. Down but not in bad shape.

Semiconductors. INTC gapped to the 10 day EMA with a doji. KLAC fell to the 50 day EMA and then reversed to the upside. Nice. ATML gapped and then reversed to flat.

Financial. Lost some ground but JPM, BAC, C, V, etc. all held the 10 day EMA nicely.

Retail. LULU held the 10 day EMA. YUM dives. WSM looked good; not now. Ditto PNRA. ANN decent. Not great action across the board.

Transports. Held up nicely. ABFS, JBHT, KSU all worked so well.

Drugs/Healthcare. JAZZ held up nicely. CELG reached lower then reversed to hold the 20 day EMA. Still quite nice.

Homebuilders/Materials. Decent overall as PHM tapped the 10 day EMA on the low and bounced. KBH gapped and stayed there. Still, solid overall. LPX gapped lower and reversed on volume to a gain. Nice.

Summary: Not bad overall though retailers are very worrisome.


THE MARKET

SENTIMENT INDICATORS

VIX: 17.84; +0.17
VXN: 20.16; +0.84
VXO: 17.12; -0.5

Put/Call Ratio (CBOE): 1.05; +0.19


Bulls versus Bears

Bulls: 46.8% versus 45.7% versus 43.6% versus 39.3% versus 37.2% versus 38.3% versus 43.6 versus 41.5% versus 45.7% . Continued higher, topping the November peak. Not getting too frothy as in late September but steadily rising. Background: Undercut 35%, the threshold for bullishness, in early June. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 24.5% versus 23.4% versus 25.5% versus 27.7% versus 27.7% versus 28.7% versus 27.7% versus 27.7% versus 25.5%. Bouncing upside even as the market rallied. Still quite low overall. On the last run never made it to the 35% that can be a bullish indication, but the bulls were weak enough back in June. Over 35% is the threshold to be really be a good upside indicator. For 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.


FRIDAY



The President, with Reid at his side, spoke to the nation after the market closed. He appeared to outline a slimmed down version that would deal with some tax issues now and tackling other tax issues later along with spending cuts. No real partisanship which was somewhat surprising, pleasantly so. He said they would go to Christmas, drink some eggnog, then get back next week. Problem is I don't think republicans will go for that because a bifurcated deal is not what they want. They want leverage to get spending cuts now.

He seemed somewhat peeved he had to come back after Christmas; I suppose we still foot the $20M bill for the entire vacation even if he is not going to be there the whole time. It likely rises as he now has to come back. So much for balancing the budget and showing fiscal responsibility. I keep thinking that in these times that $20M could be divided up in $50K chunks and given to 400 families as a year's worth of wages if the President would do what so many of us are doing this year during these hard times, i.e. stay at home. It isn't as if the White House is a shack.

Seriously, our leaders are going home or to Hawaii, and thus we won't hear anything from them until Thursday. That means the market and the rest of us are 'safe' until then, i.e. no statements over the weekend that might upside things. I could say calm things down as well, but I don't think anything they say would do that.

The market was down on the day but all things considered, the action was much better than most expected. Indeed many are VERY pessimistic about the upside prospects after Friday. I am somewhat concerned myself but I saw things in the technical action on the day that were encouraging. I still don't love SP500 and DJ30 in technical terms, but intraday they were decent and when you look at SP400 and RUTX, they were great.

Thus there may be too much pessimism regarding the prospects for more upside. I do see some upside setups that could rally higher. We can perhaps venture a few of those but it would be tight considering what I am going to say next.

I do believe the market can continue the holiday move. It did not sell out to the downside Friday in a manner that clearly says investors believe the rally has ended, there is no hope for a deal, and it is down from here. Many have written this rally off on the few days it faltered only to see it continue.

So, we could see it hold the line, continue upside on Monday's half day and indeed on Wednesday as well. Then you have the issues. Congress and the President are back and statements start to come out again. There is also the end of the year; with taxes going up there could very well be some pressure to sell positions and bank gain, particularly given the market has rebounded nicely off that November low.

Therefore, we are looking at a multi-pronged approach that we had to modify slightly (and it is really just slightly) thanks to Friday. Recall we were going to ride the rally into Monday and then take some gain and again on Wednesday and Thursday if the move continued. The point was to bank some profit on nice moves and lighten up because there may be pre-year end selling and also because the New Year could bring sell programs in.

The modification is that given Friday there may not be as much gain built in and thus how the market acts Monday is very important. On further upside we will indeed bank gain and lighten up overall. We won't dump everything but on a good move Monday and Wednesday we will be taking gain and overall lighten the upside. We can limit our upside exposure and still keep several plays going by virtue of lessening our number of shares/options for each position.

If the market does not run further upside in a bounce back from Friday, or if it bounces but then struggles, we won't wait. We will start lightening on the upside. The indices came back decently in the face of some ugly news Friday. That was enough to keep us in for a possible continuation bounce next week. If it does not materialize then we want to reduce exposure (but not eliminate it) and see where it lands.

That means we can still have some upside plays in tow for new entries, but I personally am not interested in that other than day trades, trying to get a few percentage points with a big stack of 401(k) money. There is not a lot of time to ride newly initiated longer term plays. Many of these stocks we play are great for capturing intraday gains in addition to the longer term gains of 12%, 15%, 20% and on. Not sure if there is a lot of interest in doing that among this group but that is something that we do every day as well.

In the event the market falters in a rebound attempt or otherwise flounders on Monday or later in the week if a further upside rally occur, some downside plays are appropriate to take advantage of a drop if the lack of a deal on Friday proves to be the death of the rally or if the rally continues Monday and beyond but then starts to suffer from end of year profit taking.

It is ironic to note, however, that before Friday, most market pundits were looking at a continued upside move no matter what. We are more agnostic; the upside looked good but realized it could be derailed near term even with QE4. Near term if the Cliff remains the focus, then it overcomes the QE4 upside push.

Given the year end potential gyrations that means we want to simply be lighter heading into the New Year and take a few new positions based upon the action as outlined above. QE4 is still out there, the economic data is improving (even if the unadjusted numbers are flopping), and there is leadership. If a deal is struck then stocks have reason and an open field to run higher even further.

Thus while we look to lighten up, if the market shakes off Friday and continues to recover, we will keep upside exposure as indicated above. How much depends upon the action Monday and Wednesday. That gives us the opportunity to prosper from the move even through the potentially bouncy year end.

Monday won't be much of a report, just play tables and a summary of the action. Later in the week we will have alerts and light reports. Again, we are looking more for managing existing plays than jumping in on a bunch of new plays and I want to give the staff of traders and myself included a light week to enjoy the fruits of the year.

Have a great weekend and a Merry Christmas!!!!


Support and resistance

NASDAQ: Closed at 3021.01

Resistance:
3024 is the gap point from early May
The 2011 up trendline at 3030
3042 from 5/2000 low and several other price points
3062 is the December 2012 prior peak
3076 is the late April 2012 high
3090 is the mid-March interim high
3037 is the October low
3101 is the August 2012 high
3104-3112 from August and mid-October peaks.
3134 is the March 2012 post-bear market peak
3171 is the October intraday high
3197 is the September 2012 post-bear market high
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3000 is the February 2012 post-bear market high
The 50 day EMA at 3000
2999 is the bottom of the August 2012 consolidation
The 200 day SMA at 2991
2988 is the July 2012 high
2977 to 2980 is the bottom of the late October 2012 consolidation, July 2012 peak
2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
2900 is the March 2012 intraday low
2858 is the late July 2011 peak
2847 is the mid-May 2012 low
2838 from the July 2012 lows
2778 from the May 2012 low and June 2012 gap point.
2747 is June 2012 closing low
2726 IS June 2012 intraday low


S&P 500: Closed at 1430.15

Resistance:
1433 from August 2007 closing lows
1434 from early November 2012
1440 from November 2007 closing lows
1445 is a short term down TL from the September 2012 peak
1466 is the September 2012 closing peak and rally closing high
1471 is the October 2012 intraday high
1475 is the September 2012 high
1499 from January 2008
1539 from June 2007

Support:
1427 is the August 2012 peak
1425 from May 2008 closing highs and the October 2012 low
The 50 day EMA at 1416
1408 is the late October 2012 range closing low
1406 is the early May 2012 peak
1402.22 - 1400 is the closing low of the August 2012 lateral consolidation
The 200 day SMA at 1389
1378 is the February 2012 peak
1375 is the early July 2012 peak
1371 is the May 2011 peak, the post-bear market high
1363.46 is June 2012 high
1359 is the April 2012 low
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1325 is the July 2012 intraday low
1309 is the right shoulder low from June 2012
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
1266 is the June 2012 base low


Dow: Closed at 13,190.84

Resistance:
13,413 from the late September 2012 low
13,557 to 13,662
13,653 is the September 2012 high
13662 is the October 2012 intraday high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
The 50 day EMA at 13,117
13,300 to 13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
The 200 day SMA at 13,013
12,716 is the April 2012 closing low
12,524 is a range of support from early 2012 and summertime 2012
12,391 is the February 2011 peak
12,369 is the left shoulder low from May 2012
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
12,035 is the June 2012 base low
The June 2011 low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak


Economic Calendar

December 17 - Monday
Empire Manufacturing, December (8:30): -8.1 actual versus 2.0 expected, -5.2 prior
Net Long-Term TIC Flows, October (9:00): $1.3B actual versus $3.2B prior (revised from $3.3B)

December 18 - Tuesday
Current Account Balance, Q3 (8:30): -$107.5B actual versus -$104.2B expected, -$118.1B prior (revised from -$117.4B)
NAHB Housing Market , December (10:00): 47 actual versus 47 expected, 45 prior (revised from 46)

December 19 - Wednesday
MBA Mortgage Index, 12/15 (7:00): -12.3% actual versus 6.2% prior
Housing Starts, November (8:30): 861K actual versus 875K expected, 888K prior (revised from 894K)
Building Permits, November (8:30): 899K actual versus 876K expected, 868K prior (revised from 866K)
Crude Inventories, 12/15 (10:30): -0.964M actual versus 0.843M prior

December 20 - Thursday
Initial Claims, 12/15 (8:30): 361K actual versus 345K expected, 344K prior (revised from 343K)
Continuing Claims, 12/08 (8:30): 3225K actual versus 3192K expected, 3213K prior (revised from 3198K)
GDP - Third Estimate, Q3 (8:30): 3.1% actual versus 2.7% expected, 2.7% prior
GDP Deflator - Third Estimate, Q3 (8:30): 2.7% actual versus 2.7% expected, 2.7% prior
Existing Home Sales, November (10:00): 5.04M actual versus 4.90M expected, 4.76M prior (revised from 4.79M)
Philadelphia Fed, December (10:00): 8.1 actual versus -1.3 expected, -10.7 prior
Leading Indicators, November (10:00): -0.2% actual versus 0.2% expected, 0.3% prior (revised from 0.2%)
FHFA Housing Price Index, October (10:00): 0.5% actual versus 0.0% prior (revised from 0.2%)
Natural Gas Inventor, 12/15 (10:30): -82 BCF actual versus 2 prior

December 21 - Friday
Personal Income, November (8:30): 0.6% actual versus 0.3% expected, 0.1% prior (revised from 0.0%)
Personal Spending, November (8:30): 0.4% actual versus 0.3% expected, -0.1% prior (revised from -0.2%)
PCE Prices - Core, November (8:30): 0.0% actual versus 0.1% expected, 0.1% prior
Durable Orders, November (8:30): 0.7% actual versus 0.2% expected, 1.1% prior (revised from 0.5%)
Durable Orders -ex T, November (8:30): 1.6% actual versus -0.2% expected, 1.9% prior (revised from 1.8%)
Michigan Sentiment -, December (9:55): 72.9 actual versus 74.8 expected, 74.5 prior


December 26 - Wednesday
MBA Mortgage Index, 12/22 (7:00)
Case-Shiller 20-city, October (9:00): 3.9% expected, 3.0% prior

December 27 - Thursday
Initial Claims, 12/22 (8:30): 375K expected, 361K prior
Continuing Claims, 12/15 (8:30): 3200K expected, 3225K prior
New Home Sales, November (10:00): 379K expected, 368K prior
Consumer Confidence, December (10:00): 70.0 expected, 73.7 prior
Natural Gas Inventor, 12/22 (10:30): -82 bcf prior

December 28 - Friday
Chicago PMI, December (9:45): 51.0 expected, 50.4 prior
Pending Home Sales, November (10:00): 1.0% expected, 5.2% prior
Crude Inventories, 12/21 (11:00): -0.964M 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