Stocks closed below their respective 50 DMA lines last week which is not a healthy sign. The uptrend that began on Friday, November 16, 2012- after politicians hinted that a deal would get done for the fiscal cliff is under pressure and appears to be weakening every day. The major averages fell below several important levels last week (last month’s high, their respective 50 DMA lines, their downward trendlines and the necklines of inverse head and shoulders patterns). In addition, stocks turned lower for the day, week and month. Looking forward, the next area of support is last week’s low and then November’s low of 1343 in the S&P 500. Meanwhile, the the next area of resistance is December’s high of 1448 and then 1474 (2012’s high).
Monday-Wednesday’s Action: Fiscal Cliff Woes Hurt Stocks
Thursday & Friday’s Action: Stocks Defend Support
There was a lot of technical damage done intraday on Thursday before the bulls showed up and defended support by the close. In the morning, Senate Majority Leader Harry Reid publicly attacked Mr. Boehner and said that we appear to be headed over the cliff. The DJIA, SP 500, & Nasdaq composite (all three major averages) sliced below short term levels of support (their respective 50 DMA lines) and turned negative for the month. Then, the bulls showed up in the afternoon defended support and erased earlier losses helping the major averages close near their highs after news broke that the House will hold a special meeting on December 30, 2012. Economic data was mixed to slightly negative. Consumer confidence missed the Street’s estimate and slid to 65.1 in December from a downwardly revised 71.5 in November. This was a four-month low and bodes poorly for the economic recovery. On a brighter note, weekly jobless claims slid by 12k to a seasonally adjusted 350k last week. The four-week average fell to its lowest level since March 2012. Finally, new home sales rose +4.4% in November to a seasonally adjusted 377k annual rate which is the fastest pace in 2.5 years. Stocks fell hard on Friday after the much anticipated 3pm meeting at the White House was a bust. After the close, President Obama held a Press Conference and said the hour to act is upon us. He is also slated to appear on NBC’s Meet The Press Sunday morning.
Market Outlook: Uptrend Under Pressure
From our perspective, the market is back in an uptrend which bodes well for the market and the economy, by extension. It is important to note that this uptrend has weakened markedly in recent days and is currently under pressure. As always, it is extremely important to be flexible in your approach and change when the facts change (Thank you Mr. Keynes). For those of you that are new to our work, on October 9, we said “the rally was under pressure” and then said the “rally was over” on Oct 19. Immediately after that note was published, stocks fell sharply and a lot of technical damage occurred. Then we put out a note on Friday, November 16, 2012 (the exact low for this move) titled, “Time For A Bounce.” Stay tuned as we will continue to keep you one step ahead of the crowd. As always, keep your losses small and never argue with the tape.
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