Stocks posted impressive gains this week with the Dow Jones Industrial Average (chart) closing up 3.6% hitting a five month high. The S&P 500 (chart) also finished the week up 3.7%, the Nasdaq (chart) +2.5% and the Russell 2000 (chart) +3.6%. Albeit, these gains did occur on relatively light volume.

Once again positive U.S. economic news helped fuel this week’s rally with encouraging news on the housing front where builders broke ground on over 600,000 new homes and building permits increase at a 5.7% rate. Also, on the jobs front, applications for unemployment benefits fell by 4000. Even Europe had some positive news with German business and consumer confidence rising unexpectedly in December and Spain also had a successful debt auction.

Once again the S&P 500 (chart) is at the upper end of its protracted trading range and appears to be on the cusp of breaking out. With four trading days left in the year, let’s see if the bulls get their long awaited technical breakout. Good luck to all.

Have a wonderful Holiday weekend 🙂

~George

As the markets continue to toil with the news flow out of Europe, stocks took it on the chin this week. The Dow Jones Industrial Average (chart) fell 317.87 points or 2.6%, the Nasdaq (chart) -91.52 points or 3.5%, the S&P 500 (chart) -35.53 points or 2.8% and the Russell 2000 (chart) finished the week off down 23.35 points or 3.1%. This despite Thursday’s release on jobless claims and manufacturing data which was very bullish for the markets.

So why the drop? One word, Europe! As long as negative headlines continue to hit the tape regarding Europe, I am afraid that the markets will continue this very volatile pattern it has been in for months now. However, after this week’s sell-off the S&P 500 (chart) did manage to hold key technical support levels above the 1200 mark. Also, with two weeks left in the trading year, it is possible that we could see year end window dressing instituted by fund managers. Window dressing is a strategy used by fund mangers to improve the appearance of their funds performance before each quarter’s end or year end. Let’s see if this comes into play over the next couple of weeks. Good luck to all.

Have a great weekend 🙂

~George

Once again this multi-month S&P 500 (chart) trading range of 1100 to 1265 territory has held true to form and the technical traders are seemingly outperforming the fundamental investors. Three times this week the 1265 level on the S&P was tested and ultimately failed to breakout. However, positive developments out of Europe today sent the markets higher and once again the S&P 500 (chart) is approaching the 1265 level which is also its 200 day moving average. As long as there are no further tape bombs coming out of Europe, I believe there is a strong possibility that in the near future we can potentially break out of this ever tightening trading range. But this is a big “if”. We all know by now the European debt crisis is far from over, but at least there seems to be some accord happening from across the pond.

I am also encouraged about the improving economic environment that is occurring here in the U.S. According to reports released this morning, consumer confidence has reached a 6 month high and our country’s trade gap is also narrowing, which is bullish for the economy. On the week, the Dow Jones Industrial Average (chart) closed up 186.56 points, the Nasdaq (chart) +50.47, the S&P 500 (chart) +20.84 and the Russell 2000 (chart) +22.72 points.

I, along with thousands of other traders will be keeping a close eye on a potential breakout above the 200 day moving average or the 1265 level on the S&P 500. My real preference is a breakout above the 1280 zone in which it last traded there in early November. That to me would be the true breakout point for a potential Santa Claus rally into year end. Good luck to all.

Have a great weekend 🙂

~George

After witnessing a 5% decline in the major averages Thanksgiving week, the bulls this week took charge with an amazing 7%+ gain in the four key indicies. For the week, the Dow Jones Industrial Average (chart) posted a breathtaking 7.01% gain, the Nasdaq (chart) surged 7.59%, the S&P 500 (chart) +7.39% and the small-cap benchmark Russell 2000 (chart) advanced an eye-popping 10.34%. Folks this is no typo. Once again stocks are demonstrating enormous week to week and even day to day volatility, and most likely this unprecedented volatility will continue for a while.

So why such a strong upside move and more importantly what is a trader to do with it? First on Wednesday, central banks from around the world made it easier for banks to borrow American dollars. This postponed at least for now the downward spiraling effect the markets were experiencing due to the euro zone crisis. My concern is that this extraordinary action was even necessary, which confirms that the problem across the pond is obviously a lot worse than it seems. Yes it will be helpful to ease borrowing for banks, but it does not hit the debt issues in Europe head on. What is supposed to hit the EU crisis head on is next week’s European summit in Brussels where the euro zone leaders will meet to continue their discussions on how to get closer to resolving their ever growing debt crisis.

Now to the second question of what is a trader do after this unprecedented week of gains? Even though over the past two weeks we saw a 5% decline and then a subsequent 7% gain in the key indices, again what has changed? In my opinion, absolutely nothing! We are still trading in this prolonged trading range of 1100-1275 S&P (chart) and the global risks are still out there, even China’s economic engine is cooling off. We are however seeing some encouraging economic signs here in the U.S. But as long as Europe continues without a clear path of reform, chances are global markets will continue to remain range bound. So what we will continue to look for is long opportunities at the lower end of the range and sell and even consider short opportunities at the upper end of this multi-month trading range.

That said, the day that this trading range breaks and remains in either direction, the long/short thesis will have to be revisited and a new strategy implemented. Please make sure to consult your professional investment advisor before you consider any strategy for we are certainly in unparalleled times. Good luck to all.

Have a great weekend 🙂

~George