Friday, December 23, 2011

The Morning Call Stay on the sidelines, at least today



The Market
Technical


The indices (DJIA 12169, S&P 1254) continue to follow through to the upside. They remain within their intermediate term trading ranges (10725-12919, 1101-1372). The S&P has now closed three days in a row above the 1230 resistance/support level and its 50 day moving average. Another day and both breaks will be confirmed. Recall that the DJIA never traded below its 1230 comparable level (11741) and closed only one day below its 50 day moving average. So we are also one day from the Averages being back in sync.


In addition, both indexes continue to build an inverse head and shoulders; both are also in a very short term up trend off the October lows. That puts support at 10725/1230 and the uptrend off the October lows (11965/1204). Resistance exists at the reverse head and shoulders neckline (12242/1266) and for the S&P, its 200 day moving average (circa 1259). The DJIA has already broken through its 200 day moving average.

As you can see, the Averages are trading in a very congested area with several significant patterns developing and a number of closely spaced resistance and support levels. That suggests caution. Our Portfolios will likely do nothing till the above referenced neckline of inverse head and shoulders are broken to the upside lots or prices fall below 11741/1230.

The VIX continues to decline which is a positive for stocks.

GLD (156) failed to successfully challenge its 200 day moving average (157) to the upside; for the moment, this represents resistance. Near in support exists at 153.

Fundamental

Fundamentally, the news flow continues to support our forecast:

The economic news is mixed albeit with enough positives to suggest our slow, sluggish recovery thesis is spot on.

The Europeans are managing to just barely ‘muddle through’, the latest ‘new’ financing package being a positive but only marginally effective and hardly a solution.

Our own political class once more demonstrates its ineptness.

Yesterday’s good economic news was great weekly jobless claims and better than expected leading economic indicators and the University of Michigan consumer sentiment reading. The bad news was a disappointing revision to third quarter GDP. This data continues to support our forecast and therefore is priced into our Models.