Weekly Technical Commentary by Art HuprichFriday Morning 11/28The stock market, as defined by the pre-market open futures prices, was called lower on Wednesday. However, when news from DE ($35.76) and the Durable Goods report came out, the downside pressure was exacerbated. Consequently, the DJIA was quickly down 168 points. Then, despite a limited audience and thanks to very good intraday advance – decline readings, with about two hours of trading left the major averages caught an underlying bid. At the final bell, the DJIA gained 247 points or 2.9%. The NASDAQ, gaining 67 points or 4.6%, exhibited huge relative strength along with the small and midcap indices. On the NYSE, volume contracted to 1.41 billion shares. There were 2242 net advancing issues. New 52-week highs rose to 19. Following is a multi-decade chart of Crude Oil ($54.44), going back to 1985. There are two significant support levels evident on the chart. The first important support level exists “in and around” $50. While there have been some intraday probes below $50, I am not prepared to say that critical support “in and around” $50 has been violated. Within the context of a very short-term bullish “flag” pattern, which will get completed on a move above $55.30 and is only evident on a daily chart, while Crude Oil is struggling to move higher, support “in and around” $50 is still holding firm. I would say a close below $49 - $48 would be classified as a violation of support, especially if it occurs on a weekly basis. The second critical area of support exists in the $41 to $40 area. As shown in the following chart, this is derived from a price peak (support) in late 1990 and a “pullback point” (support) in 2004. Crude Oil ($54.44) 
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While placing more emphasis on “price and volume,” versus “seasonality,” here are some historical statistics for the month of December. Additionally, December is the second strongest month of the year for the DJIA, since 1950. 
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Wednesday Morning 11/26Here are the Bull-Bear advisory sentiment readings. These figures are derived from investment newsletter writers and are produced by Investors Intelligence: “The BULLS fell to 29.0% from 30.9% last week. The bulls were as few as 22.2% just after the Oct-10 market low. The BEARS were up to 44.1% from 43.6% the previous week. That reading ends four weeks of falling bears since they achieved a peak at 54.4% after the October lows. We (Investors Intelligence) continue to view the sentiment indicator as bullish for stocks and favoring a higher market down the road. Sentiment is most useful in identifying extreme market risk. October 2008 provided pessimistic data with record lows for the bulls and high bearish readings. That signaled lowered risk to accumulate shares.” In terms of yesterday’s tape action, for the second consecutive trading session the SPX ran up to very short-term resistance “in and around” 866, as it hit 869, and pulled back. Wide intraday moves continue to be the norm, as the DJIA recorded a number of 200 point swings. At the bell, the DJIA gained 36 points. NASDAQ continues to be an anchor, losing seven points. On the NYSE, volume contracted to 1.80 billion shares. There were 1096 net advancing issues, a good reading. After a three day rally there was a combined 11 new 52-week highs on the NYSE and NASDAQ. The new 52-week high figure is one of the “internal” readings that will have to improve in order to a) have some sustainable topside market action and b) identify emerging leadership. Should I Sell Here? In order to help answer this question and put things in perspective, here are some comments from Dorsey-Wright & Associates, which I find appropriate: “We can't stop managing risk within portfolios just because they are down x% this year, and we can't throw the technicals out the window just because a stock falls below x-price. Many investors gravitate to the thought, “how much lower could it go?” The answer is 100%, a stock can go 100% lower from where it is today, and in some market environments the likelihood of that occurrence is much higher than others. It’s like I tell my 4 year old when she gets a splinter, “I know it might hurt a little, but we have to get it out now or else your whole hand could get infected and that would hurt a lot worse.” If it has fallen below its October lows and is on a sell signal here, what are your reasons for holding it? Plenty of stocks are still worthy enough to stay in the portfolios, others you will be hard pressed to find ample reason not to pull the splinter out.” The following table depicts the percentage gain necessary to get back even, after a certain percentage loss. 
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ConclusionLet’s give a label to the various trends of the SPX / DJIA: Short-term = down. I would classify yesterday (11/25/08) as a “healthy consolidation day.” That being said, on 11/19/08 the DJIA declined for the tenth Wednesday in a row and today is Wednesday. Intermediate-term = down Long-term = neutral BUT long-term support, as defined by the lows from 2002-2003, are being tested and so far holding. Since the lows that are currently being tested are the bottom from the last bear market, I find these levels extremely important. This is a spot for the stock market to attempt to form a bottom. If the stock market is going to take a stand, it needs to do so here, in and around the 2002-2003 lows. If the low is decisively broken, the chart pattern turns negative. If we use a weekly or monthly chart to view the relationship between the two low points, then a “decisive” break of, or close below support will have to show up on the weekly or monthly chart, not just the daily chart. That is the viewpoint that I am going to use here. Following is a weekly chart of the DJIA. 
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Tuesday Morning 11/25Follow through buying in Gold and the commodity stock complex coupled with the news over the weekend concerning C ($7.05) acted as a “shot of caffeine” for the stock market yesterday. The DJIA gained 396 points and the NASDAQ rallied almost 88 points. The Bank Index (BKX), Broker-Dealer Index (XBD), and REIT Index (RMZ) gained 17%, 19%, and 18%, respectively. The Gold and Silver Index (XAU) and Natural Gas Index (XNG) gained 7% and 9%, respectively. On the NYSE, volume contracted to 1.96 billion shares. In light of the fact that last Friday was expiration, I don’t consider the fact that volume contracted on a day the market rallied a problem. There were 2428 net advancing issues. The Oversold – Overbought Oscillator ended at minus 11.4, versus Monday’s reading of minus 14.5. A couple of observations, listed in no particular order, include: 1) Every bailout rally, thus far, has failed. I don’t know if this one fails or succeeds. What I do know is that this particular bailout rally started after the SPX and DJIA tested and held long-term support. I alluded to it yesterday and I’ll do so again today, “I think this is an important fact!” 2) Small capitalization stocks are losing their leadership role versus large capitalization stocks. In other words, “tactical” asset allocators should increase their exposure to large cap stocks, at the expense of small cap stocks. I am not making a statement about what percentage exposure you should have to stocks. I am making a statement about how to allocate what exposure you have to stocks. 3) The SPX rallied to 865.60 yesterday, right to the upper end of the very short-term area of resistance between 840 and 866 (followed by resistance at 915), and pulled back. Very short-term oriented accounts should continue to use resistance accordingly. I think we need to focus on resistance points. A move above resistance would signal that upside momentum is improving. 4) Volatility continues to reign supreme. In a span of 10 minutes yesterday, with approximately 15 minutes of trading left, the DJIA fell 268 points after which it gained 160 points in two minutes. Please contact your financial advisor for specific ways the options market may help you here. 5) Short-term bottoming action is being exhibited by the Euro. Monday Morning 11/24As the DJIA slipped to 7449 last Friday and into its support range from 2003 – 2002 of between 7532 and 7198 (March 2003 low was 7416.64) and at the same time, the SPX traded down to within 8 points of support from 1997 at 733 (see 11/20/08 report), a huge short-covering, expiration related rally ensued. At the close, the DJIA gained 494 points, the SPX rallied almost 48 points, and the NASDAQ added 68 points. As a result of Friday’s action, which I think was very important psychologically, the SPX recaptured its breakdown point of 768 (2002 low), after only one day. This is why I felt it was better to wait until the end of the week and possibly this month, before passing judgment. I still feel that way! Consequently, I am not yet willing to say that the SPX has violated its 2002 lows. I believe the SPX and DJIA are at critical inflection points! Within the context of a long-term “structurally fair” market, in which the DJIA moved sideways for a decade or more, similar to 1966 to 1982, 1929 to 1949, and 1901 to 1915, in light of testing five to six year lows, this is a spot for a stock market bottom to attempt to form. The key word is “attempt”. A “pocket” of very short-term resistance exists (this means a number of different levels exist) for the SPX between 840 and 866, followed by 915. Very short-term resistance for the DJIA exists at 8505 and “in and around” 8900 to 9160. Within the context of what I believe is an intermediate-term down trend, defined by lower rally peaks and lower troughs, Gold ($791.80) registered a bullish short-term topside breakout last Friday. Additionally, Gold’s relative strength price trend recorded a new high. I think Gold can make a stair-case move (1-step up, ½-step back) towards resistance at $856 and $876. Additionally, I think the U.S. Dollar Index (87.04) will experience some profit taking. Charts courtesy of Thomson Reuters
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