Clif Backes - Market Commentary and Analysis

"Good Morning..." is edited by Clif Backes and Michelle Zygma.  Clif is a Senior Vice President of Investments, Technical Analyst and a Partner with the investment firm of Bannon, Ohanesian & Lecours, Inc.  Michelle is an Assistant in Brokerage Operations and Portfolio Administration with Bannon, Ohanesian & Lecours, Inc.  "Good Morning..." is written solely for the benefit the clients, friends and prospects of Clif and/or Michelle. It is available to anyone in email form for no charge.

Good Morning, today is Friday, December 16, 2005

Graphic Confirmed Accumulation / Distribution (September 29, 2005 - December 15, 2005)

Typically it take two to four days of confirmed distribution with no accumulation between to mark the end of a rally in the stock market.  It takes two days of confirmed accumulation three to nine sessions apart, with at least a 2% increase in the averages and no distribution between to mark the beginning of a new rally. Accumulation occurs when a stock or a market average trades higher on higher trading volume than the prior trading session.  Distribution occurs when a stock or market average trades lower on higher trading volume than the prior trading session.  Confirmed accumulation or distribution occurs when all three major averages, the Dow, the NASDAQ and the Standard and Poor's 500 all record accumulation or distribution on the same day. 

08:33 ET Dow , Nasdaq , S&P :  [BRIEFING.COM] S&P futures vs fair value: +4.5. Nasdaq futures vs fair value: +3.5. Futures indications are off their best levels but still trade above fair value, setting the stage for stocks to resume their fourth-quarter rally. Separately, the latest report on the current (Q3) account balance just checked in at -$195.8 bln (consensus -$205.0 bln), but since a large deficit was widely anticipated, it has so far had little impact on pre-market action. Bonds have also shrugged off the data as the 10-yr note is still up 6 ticks to yield 4.43%. 

www.briefing.com

Technical Analysis by Clif Backes

Markets logged a session of uninspired confirmed distribution yesterday after the Consumer Price Index recorded its biggest monthly decline in 46 years.  Stock prices rose early in the session but succumbed to selling pressure about 15 minutes in.  Stocks then spent the rest of the day trying to fight back into positive territory.  As for the distribution, it is hard to take it too seriously.  Trading volume was up only 1.0% on the New York Stock Exchange and didn't even reach average daily.  Meanwhile the Dow Jones Industrial Average was only down 1.90 points.  While the NASDAQ confirmed the distribution on the Dow and Standard & Poor's 500, up volume outpaced down by a significant margin.  Confirmed distribution, but not cause for concern. 

The NASDAQ continues to exhibit a narrowing of leadership.  Yesterday advancing issues again trailed decliners while up volume bettered down.  This indicates more buying chasing fewer and fewer advancing issues.  This is market action generally indicative of a market top.  I remain unconcerned by this activity, but by the same token I remain vigilant.  As I have pointed out before, only 60% of NYSE stocks are trading above their 200 day moving averages.  Markets generally top with better than 85% of NYSE stocks above their 200 days.  That said, always keep your stop loss orders in place.  Stops should be at their tightest levels as the market continues what looks like an orderly consolidation and weak stocks should be weeded out and replaced by investments with better potential.

Looking at the indexes.  The S&P 500 is threatening to break out of its 3 week consolidation.  Current resistance is in the area of 1268 while the S&P is currently trading above that at 1271, the breakout has not yet been decisive.  The move above resistance on Thursday came on weak volume and failed yesterday.  Look for a powerful move above current levels on heavy volume to confirm the move above resistance.  The NASDAQ continues to consolidate in an upward sloping pennant formation.  Upward sloping pennants generally resolve to the upside indicating that the NASDAQ probably wants to move higher.  Look for the NASDAQ to break above resistance at the prior 4 year high of 2278

Meanwhile the Dow Jones Industrials continue to be the key to generally higher markets.  Both the S&P and the NASDAQ have broken out of multiyear upward sloping pennant formations indicating, perhaps, significant gains to come.  The Dow is the only of the Majors to yet breakout.  Breakout of the Dows multi year pennant is in the 11,000 area.  The Dow has tested that level and failed twice in the past year.  It appears poised to take another run at it.  Maybe three times is the charm.  Stay tuned. 

The Dow Jones Transportation Average continues to trade in a range defined by support at 3905 and resistance at its recent November high of 4200.  The exciting news of the past week is that the Dow Jones Utility Average appears to have confirmed the Industrials and the Transports setting up a Dow Theory buy on the market.  The Utilities moved decisively above resistance at 403 which now becomes support.  The next hurdle for the Utilities is its August 2004 to today upward sloping trend line which it is currently resting just below. 

I am encouraged about the market going forward.  Things really seem to be coming together technically and we may be setting up for a very good first half of 2006.  We will see.

That is all for this week.  Enjoy your weekend.  Be safe and let's all meet back here on Monday morning.

All the best...

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