Be Careful Out There

Last week we saw a large amount of macro-economic data flow across the tape.  Retail sales numbers for November saw a 0.2% increase in both total sales and sales less autos.  Total sales had been expected to increase by 0.6%, while sales less autos had been generally expected to post a 0.5% increase.

The latest initial weekly jobless claims tally dropped to a 43-month low of 366,000.  Economists came up with a consensus number in the 390,000 range.  December readings for the Empire State Manufacturing Survey and the Philadelphia Fed Survey improved to 9.5 and 10.3 respectively.  The consensus estimates for these two numbers were 3.0 and 4.5.  So, even in light of the uncertainty from Europe, broad domestic economic numbers are providing positive surprises.

The first three sessions of last week saw stocks average losses of about 1%.  A lack of progress by Europe’s leaders in restoring economic and financial conditions in both the core and periphery of the continent weighed on the market.  In response to headlines the Euro sold off sharply last week.  The Euro dropped to an 11-month low near $1.29 Wednesday of last week.  The Euro rallied slightly off the lows at the end of the week. 

Markets attempted to rally early Tuesday.  Several bought early in the morning in anticipation of further accommodative action from the Fed.  Many thought, at least, a hint of QE III was coming last week.  Sellers came in after the Fed failed to give any sign that it would launch a further round of quantitative easing.

The technical picture for the overall market is neutral at best.  It is clearly not a positive sign that all the major indexes are trading below their respective 200 day moving averages.  40% of the stocks in the S&P 500 are in sound shape technically; their patterns are either basing or advancing.  The tape is extremely split.  Many stocks have been in their own private bear markets for months now.  Several stocks continue to act spectacularly.  Stocks were bid higher, almost across the board earlier in the year.  In the steep slide from the yearly high almost everything was sold.  The market is becoming far more selective. 

Short term support for the S&P 500, Dow and NASDAQ are 1208/11,785 and 2525.  If all three of those levels give way selling into yearend will likely intensify.

Short term resistance numbers are 1232/11,970/2590.  A close above all those levels will signal improvement in the near term picture.