This Week’s Market Outlook – From Toni Hansen

December 19, 2011

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DAILY COMMENTARY

Outlook Remains Worrisome (Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.) FRIDAY’S MARKET WRAP-UP Market Snapshot for December 17, 2011 (9:52 a.m. ET): Closing Prices: DOW 11,866.39 (-2.42, -0.02%), SandP 500 1,219.66 (+3.91, +0.32%), NASDAQ 2,555.33 (+14.32, +0.56%), Nikkei 225 8,401.72 (+24.35, +0.29%), DAX 5,701.78 (-28.84, -0.5%), FTSE 5,387.34 (-13.51, -0.25%) OIL 93.53, GOLD 1,597.90, SILVER 29.671 EURO 1.3042, YEN 77.78, BRITISH POUND 1.5542, U.S. DOLLAR INDEX 80.84 Weekly Resistance Proves Difficult to Overcome The market has been struggling over the past couple of weeks. The late-November/early-December recovery struck strong daily, as well as weekly resistance just over two weeks ago. This level corresponded to the early-November congestion zone and highs. It was also the 200-day moving average level in the SandP 500. The pace of the buying slowed as this zone hit, thus shifting the underlying intraday momentum. This shift in momentum resulted in a breakdown that began on December 8th coming out of the slower uptrend channel. Even though the market recovered modestly ahead of that weekend, the selling resumed early Monday morning on the 11th. We continued to see modest recoveries on the 15 minute time frame throughout the past week, but each attempt was punctuated by a faster decline that quickly eroded those efforts. This past Friday was no exception. A slowdown in the selling pace afterhours on Wednesday evening was followed by a rapid move out of the Momentum Reversal buy setup into Thursday, but the momentum of the upside shifted once again into Friday’s session, resulting in the closure of the morning gap mid-day after a rapid morning reversal (selloff). Shares remained weak into the closing bell with the broad market lower by about 3% for the week.

Friday’s Index Wrap-up The Dow Jones Industrial Average ($DJI) ended the day on Friday with a loss of 2.42 points, or 0.02%, and closed at 11,866.39. The top performers were Home Depot (HD) (+2.54%), Microsoft (MSFT) (+1.72%), General Electric (GE) (+1.31%), and Chevron (CVX) (+1.19%). The weakest were IBM (IBM) (-2.09%), United Technologies (UTX) (-1.55%), and Hewlett-Packard (HPQ) (-1.22%). The week ended lower by 2.61%, but remains higher by 2.5% for the year-to-date. The SandP 500 ($SPX) finished the session with a gain of 3.91 points, or 0.32%, and closed at 1,219.66. The strongest individual percentage performers in the index were Adobe Sys. (ADBE) (+6.58%), Cameron International Corp. (CAM) (+6.00%), Masco Corp. (MAS) (+5.29%), and Discover Financial Services (DFS) (+5.03%). The weakest were Cablevision Sys. (CVC) (-8.47%), Sears Holdings Corp. (SHLD) (-8.36%), and Accenture Plc. (ACN) (-3.53%). The index ended the week lower by 2.83% and is now off 3.02% year-to-date. The Nasdaq Composite ($COMPX) ended the session higher by 14.32 points, or 0.56%, on Friday and it closed at 2,555.33. The top index components in the Nasdaq-100 ($NDX) were Vertex Pharmaceuticals (VRTX) (+7.89%), Adobe Systems (ADBE) (+6.58%), and Alexion Pharmaceuticals (ALXN) (+4.24%). The weakest were Research In Motion (RIMM) (-11.17%), Sears Holdings Corp. (SHLD) (-8.36%), and Gilead Sciences (GILD) (-3.46%). Research In Motion (RIMM) beat earnings expectations for its fiscal third-quarter, but offered a disappointing outlook and announced that its next generation of BlackBerries won’t be available for nearly a year. The Nasdaq Composite ($COMPX) is of 3.68% year-to-date after a weekly loss of 3.46%.

We’ve been following the daily and weekly resistance zone in the market for awhile now. Since first hitting back in mid-October, the indices have fallen into a period of congestion on the monthly time frame. Because the selloff in November held the upper 2/3 of the previous rally and the recovery returned to the zone of prior highs in December, the congestion thus far has remained outwardly bullish. Nevertheless, there is plenty of room for concern. If this pattern had taken place following a long period of selling, it would be developing a Phoenix buy setup on the weekly time frame, but the pattern is instead forming after a two-year rally came to an end after hitting monthly price resistance back in February. This led to a rapid selloff into August which shifted the larger momentum of the market. October’s recovery from that selloff was not enough to shift that larger momentum once again, however, and the inability of European leaders to make progress in stabilizing the region’s economy keeps concerns for the impact on the global economy elevated. Last week Fitch Ratings downgraded six European countries. Additionally, on Friday U.S. federal leaders pointed out that continued downside in the European region would likely impact the demand for U.S. jobs, further weakening our own recovery attempts. Even China has been starting to feel the heat in recent months.

U.S. Dollar, Gold, and Silver While things remain sketchy in Europe, the U.S. dollar has been a beneficiary. The U.S. Dollar Index ($DXY) hit traded at its highest level since January this past week. It does have strong weekly resistance hitting here, however, so I’m leary of new positions at this point, but the longer-term monthly outlook remains bullish. It hit strong equal move support on the monthly time frame this spring when comparing the 2009 selloff to the mid-2010 to mid-2011 one, but the pattern leading into the mid-year reversal this year typically continues to hold support for much longer than we have seen so far, making strong selling into next year unlikely. Ideally, however, we would not have seen slightly higher highs this month compared to October’s highs before it pulled back again on the daily time frame. This creates a bull trap that can increase bullish risk. Stock traders can follow the U.S. Dollar Index using ticker symbol UUP. While capital has been flowing back into the dollar, we’ve seen gold and silver retreat. The weekly Avalanche sell pattern we’ve been following over the past several months in gold triggered early this past week week after finally shaking free of the 100 day moving average zone that has served as support since September. We should see the momentum off that selloff slow this week, but the next main level of support is from the congestion zone back in May and June. This leaves the door open for more weakness before the end of the year. ECONOMIC REPORTS AND EVENTS THIS WEEK Dec 19 10:00 AM NAHB Housing Market Index Dec Dec 20 8:30 AM Housing Starts Nov Dec 20 8:30 AM Building Permits Nov Dec 21 7:00 AM MBA Mortgage Index 12/17 Dec 21 10:00 AM Existing Home Sales Nov Dec 21 10:30 AM Crude Inventories 12/17 Dec 22 8:30 AM Initial Claims 12/17 Dec 22 8:30 AM Continuing Claims 12/12 Dec 22 8:30 AM GDP – Third Estimate Q3 Dec 22 8:30 AM GDP Deflator – Third Estimate Q3 Dec 22 9:55 AM Michigan Sentiment – Final Dec Dec 22 10:00 AM Leading Indicators Nov Dec 22 10:00 AM FHFA Housing Price Index Oct Dec 23 8:30 AM Durable Orders Nov Dec 23 8:30 AM Durable Goods Orders -ex Transportation Dec Dec 23 8:30 AM Personal Income Nov Dec 23 8:30 AM Personal Spending Nov Dec 23 8:30 AM PCE Prices – Core Nov Dec 23 10:00 AM New Home Sales Nov International: Eastern Time Zone (GMT -4:00) (New York, Toronto) Dec 18 16:00 NZD Westpac NZ Consumer Confidence (4Q) (4Q) Dec 18 19:00 NZD NBNZ Activity Outlook (DEC) Dec 18 19:00 NZD NBNZ Business Confidence (DEC) Dec 18 19:01 GBP Rightmove House Prices (DEC) Dec 19 JPY Cabinet Office Monthly Economic Report Dec 19 18:00 AUD Conference Board Leading Index (OCT) Dec 19 19:01 GBP GfK Consumer Confidence Survey (DEC) Dec 19 19:01 GBP Nationwide Consumer Confidence (NOV) Dec 19 19:30 AUD Reserve Bank’s Board December Minutes*** Dec 19 23:30 JPY All Industry Activity Index (OCT) Dec 20 00:00 JPY Leading Index (OCT F) Dec 20 02:00 EUR German GfK Consumer Confidence Survey (JAN) Dec 20 02:00 EUR German Producer Prices (NOV)*** Dec 20 02:00 CHF Trade Balance (NOV) Dec 20 04:00 EUR German IFO – Business Climate (DEC) Dec 20 04:00 EUR German IFO – Current Assessment (DEC) Dec 20 04:00 EUR German IFO – Expectations (DEC) Dec 20 06:00 GBP CBI Reported Sales (DEC) Dec 20 07:00 CAD Consumer Price Index (NOV)*** Dec 20 07:00 CAD Bank Canada Consumer Price Index Core (NOV)*** Dec 20 08:30 USD Housing Starts (NOV) Dec 20 08:30 USD Building Permits (NOV) Dec 20 16:45 NZD Current Account Balance (3Q) Dec 20 18:50 JPY Merchandise Trade Balance Total (NOV) Dec 20 21:00 NZD Credit Card Spending (NOV) Dec 21 JPY Bank of Japan Rate Decision (DEC 21)*** Dec 21 04:30 GBP Bank of England Minutes*** Dec 21 04:30 GBP Public Finances (PSNCR) (NOV) Dec 21 04:30 GBP PSNB ex Interventions (NOV) Dec 21 04:30 GBP Public Sector Net Borrowing (NOV) Dec 21 08:30 CAD Retail Sales (OCT) Dec 21 10:00 EUR Euro-Zone Consumer Confidence (DEC A) Dec 21 10:00 USD Existing Home Sales (NOV) Dec 21 16:45 NZD Gross Domestic Product (3Q)*** Dec 22 00:00 JPY Bank of Japan Monthly Economic Report Dec 22 04:30 GBP Gross Domestic Product (3Q F)*** Dec 22 04:30 GBP Current Account (3Q) Dec 22 04:30 GBP Total Business Investment (3Q F) Dec 22 08:30 USD Gross Domestic Product (Annualized) (3Q T)*** Dec 22 08:30 USD Personal Consumption (3Q T) Dec 22 08:30 USD Gross Domestic Product Price Index (3Q T)*** Dec 22 08:30 USD Core Personal Consumption Expenditure (3Q T) Dec 22 09:55 USD U. of Michigan Confidence (DEC F)*** Dec 22 10:00 USD Leading Indicators (NOV) Dec 23 04:30 GBP BBA Loans for House Purchase (NOV) Dec 23 08:30 USD Durable Goods Orders (NOV)*** Dec 23 08:30 USD Durables Ex Transportation (NOV) Dec 23 08:30 CAD Gross Domestic Product (OCT)*** Dec 23 08:30 USD Personal Income (NOV) Dec 23 08:30 USD Personal Spending (NOV) Dec 23 10:00 USD New Home Sales (NOV) *** Highly influential Notice: The Bastiat Group, Inc. has attempted to verify the information contained in this calendar, however, any aspect of such info may change without notice. Foreign economic reports included in this list are only those deemed “medium to high impact”.

KEY EARNINGS ANNOUNCEMENTS THIS WEEK

Monday, Dec 19, 2011 Before: – During: – After: RHT Tuesday, Dec 20, 2011 Before: CAG, GIS, JEF, NAV, SAFM During: – After: FSII, JBL, NKE, ORCL, PAYX, SHFL, STND Wednesday, Dec 21, 2011 Before: ATU, KMX, SHAW, WAG During: – After: BBBY, FINL. MLHR, LUB, SCS, TIBX Thursday, Dec 22, 2011 Before: AM, NEOG During: – After: CAMP, CBK Friday, Dec 23, 2011 Before: – During: – After: Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled.

DISCLAIMER

There is a very high degree of risk involved in trading securities. Past results are not indicative of future returns. Prior to the execution of any securities trade, you should always consult with your broker or other financial advisor. The positions given and described by the Bastiat Group, Inc. and its employees and affiliates are for educational purposes only. The Bastiat Group, Inc. and its members, employees, agents, consultants, analysts, representatives, content and/or service providers, affiliates, subsidiaries, successors and assigns (hereinafter collectively, “The Bastiat Indemnities”) assume no responsibility or liability for your trading and investment results. Go to http://www.tonihansen.com/disclaimer.html for a complete disclaimer. (c) 1998-2011 All information presented is property of TradingFromMainStreet.com and Bastiat Group, Inc. PO Box 330 Roland, IA 50236 , USA To unsubscribe or change subscriber options visit: http://www.aweber.com/z/r/?LEwsrOzMtCxMnBwcTCzstEa0jIwMjAyMzJw=