Stocks confirmed their latest uptrend when they closed above resistance (1435) on Tuesday, December 18, 2012. This marked day 22 of their current rally attempt (that began on Friday, November 16, 2012- after politicians hinted that a deal would get done for the fiscal cliff). It was very healthy to see the major averages break above several key areas of resistance last week: last month’s high, their respective 50 DMA lines, their downward trendlines and the necklines of their bullish inverse head and shoulders bottom pattern. Looking forward, the next area of support is the 50 DMA line while the next area of resistance is 2012 high.
Monday-Wednesday’s Action: Stocks Confirm A New Uptrend
Stocks rallied on Monday during the last full trading week of the year. President Obama and Speaker Boehner appeared to be getting closer to a deal as the ongoing fiscal cliff drama continued. Financials and Housing led the rally which, as you know, are my two favorite sectors in the market right now. It was encouraging to see the S&P 500 defend support near the 50 DMA line. Stocks rallied on Tuesday helping the major averages confirm their latest rally attempts. It was encouraging to see a slew of stocks break out of sound bases and the benchmark S&P 500 close above 1435 for the first time since the middle of October. Technically, the market broke above the neckline of a bullish inverse head and shoulders bottom and above an ascending triangle on Tuesday which confirmed the latest rally attempt. This action is very healthy and suggests higher prices will likely follow. Investors cheered after the White House said they would raise their level from 250k/year to 400k/year to help appease Mr. Boehner.
Stocks opened higher but closed lower on Wednesday after optimism faded regarding the fiscal cliff. Normally, it is not “healthy” to see stocks open higher and close lower therefore Wednesday’s action, after a decent move, appears to be nothing more than an overbought market taking a breather. Healthy data came out of Europe which helped send the euro surging to new multi-month highs. In the US economic data was mixed. November housing starts hit an annualized rate of 861k which missed the Street’s estimate for 875k. However, the data was adversely affected because of Superstorm Sandy. Meanwhile, building permits topped estimates rising to 899k, above the forecast for 876k. Technically, the Nasdaq suffered a death cross (50 DMA line undercut the 200 DMA line) which is normally bearish.
Thursday & Friday’s Action: Deal Or No Deal Regarding Fiscal Cliff?
Stocks were quiet on Thursday even as investors digested a slew of economic data. Q3 U.S. GDP jumped to an annual rate of 3.1% which easily topped the earlier estimates of 2.7%. Existing home sales surged 5.9% to a seasonally adjusted rate of 5.04 million units which would have been stronger if Superstorm Sandy did not occur. The Labor Department said jobless claims fell 17k to a seasonally adjusted 361k in the second week of December which bodes well for the jobs market. After Thursday’s close, Speaker Boehner canceled the vote in the house for Plan ‘B’ which sent futures plunging over night. Stocks fell on Friday as fear spread regarding the fiscal cliff.
Market Outlook: Uptrend
From our perspective, the market is back in an uptrend which bodes well for the market and the economy, by extension. 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. Since then, stocks have gone straight down and a lot of technical damage has 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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