“The Dow and S&P 500 saw their 8-week win streaks snapped as the bears pushed multiple layers of support throughout the week. However, after 4 days of selling pressure, the bulls rebounded big time on Friday to nearly grab the weekly win. Their efforts fell short for the most part as the major indexes finished the week lower but Tech managed a small gain and the VIX closed back below 15.
Much of the pullback was based on taper tampering as strong economic news had the talking heads predicting a December cut by the Fed but on a technical basis it was simply a back test to support.
We mentioned all week the action was bearish despite the bullish headlines and the official estimate for Friday’s Nonfarm Payrolls report had been for a gain of 185,000 jobs. Most of the suit-and-ties were penciling in a gain of over 200,000 coming into the week but some whisper numbers were upped in the 250,000-300,000 range.
The thinking on Wall Street was a number north of 250,000 would been an automatic guarantee for a December QE (quantitative easing) taper announcement. With a gain of “just” 203,000 jobs and slightly above estimates, it was the perfect number. The unemployment rate dropped to 7%.
As the taper talk continues, we have said since the summer that we did not expect the Fed to make a move until MAYBE December and we have been right so far. This is one of the main reasons we stayed bullish in October and November.
The next FOMC meeting is scheduled for Tuesday, December 17, and there will be a number of Fed Heads speaking throughout the week starting on Monday. This will likely lead to some volatility and possibly a continued trading range into next week as every word they say will be debated.
We now do not expect the Fed to reduce QE until March as they have said they want to see unemployment under 6.5% and jobs gaining over 200,000 a month, consistently. When the holidays end there will be job cuts and we haven’t even mentioned the zombies. We feel the Fed wants to be 100% certain the economy is rebounding before they make any cuts to the $85 billion monthly infusion but with Bernanke on the way out, there could be a curveball.
The bulls did well on Monday/ Friday closes in October and November and although the Dow ended higher this past Friday, Black Friday along with this past Monday’s pullback was the first lower Monday/ Friday close since late September. For those of you just joining us, positive Monday/ Friday closes usually means money is moving into the market while lower M/F’s could signal cash is moving to the sidelines.
The deadline for a budget deal is this Friday and the event could bring added volatility. The zombies gave the budget to a bipartisan committee after the government shutdown to come up with a solution that could be passed by both the House and Senate. While there is chatter a deal is going to be reached, we wouldn’t hold our breath.
The Financial stocks held up well to start the week with some names hitting fresh 52-week peaks. Most of them pulled back as the rest of the week played out but held support. We have mentioned this sector needs to show strength into yearend if the bulls are going to push higher ground as they have lagged the major averages all year long.
The Financial Select Spiders (XLF, $21.39, up $0.29) closed below their 20-day MA on Thursday but bounced back on Friday. The XLF has not fallen below $21 since mid-November so a close below this level needs to be watched as it would get the 50-day and 100-day MA’s in play. A close above $21.65 will lead to a breakout to new highs and possibly a run past $22 over the near-term.
A retest to support would also be good as talk of Friday’s gains not holding would make the rounds and flush out more traders. The talking heads will denounce a Christmas rally isn’t coming and the Wall Street pros will be looking to take early vacations.
As long as support holds, this would be the perfect setup for new highs by yearend as the small-caps strengthen and the Christmas rally officially begins. Remember, the Santa rally, if one comes, covers the last 5 trading days of the year and the first two in January.” (from 12/8/2013 Weekly Wrap…)
The bears followed the same game plan last week as the prior week as they kept steady pressure on the bulls while taking Friday off. The bulls held support for the most part but some damage was down as a test to the 50-day MA’s (moving averages) were pushed but overall the market is behaving just like we expected. (continued…)
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