The stock market roller coaster continued last week, and it's nearly certain
that similar dashes and dips are just ahead. Our positions remain mostly
positive as we head toward the Thanksgiving holiday, and for that we are
thankful because being "long" in this sea of worrisome news is. . .well,
worrisome, at best. However, the one lesson I've learned in all these years is
that one has to stick with one's system and have the discipline to do that no
matter what your gut might be telling you. The Technical Picture Click to
Enlarge The chart of the S&P 500 (NYSE: SPY ) clearly depicts the intensity of
the recent roller-coaster ride and shows how the market is making another
attempt at breaking higher out of the current trading range. For a year-end
rally to happen, the markets need to decisively reclaim the 200-day moving
average and break higher. If stocks can go past the 1,290 level, a quick ride to
recent highs at 1,340 would not be unexpected as everyone jumps aboard this
year's "Santa Rally." If the bulls should fail here and roll over, a quick
drop to 1,220 or lower is probably in the cards. The Fundamental Picture Hot
sectors last week were health care (NYSE: XLV ) and consumers (NYSE: XLY ) as
investors sought safety from the volatility along with hopes for gains. This
week, Europe will remain the wild card in the deck, and news you need to be
watching will come from Italy. Plus, well have important economic data at home,
including retail sales on Tuesday, industrial production Wednesday, weekly
employment and Philly Fed on Thursday and Octobers leading indicators on Friday.
The Profit Picture The profit picture indicates that we're due for the
traditional Santa Rally from now through the end of January, even as Europe
burns and economic uncertainty abounds. In spite of all of the negative news,
technical indicators say theres more upside ahead, and seasonality would support
this view. Unknowns are the situation in Europe and the results of the
congressional "super committee" deliberations due to be complete by Nov. 23.
Longer term, however, the skies grow considerably darker as this game of musical
prime ministers in Europe does nothing to solve the region's real problems.
And domestically we continue to face significant economic headwinds with high
unemployment and a moribund housing market. Leading sectors to consider if the
Santa Rally comes on strong would be Energy (NYSEARCA: IYE ), Healthcare
(NYSEARCA: XLV ), Financials (NYSEARCA: XLF ) if we can assume that Europe will
dodge its "Lehman 2.0" event and, of course, one can never forget
technology (NASDAQ: QQQ ) as Santa brings bags of iPhones to good little boys
and girls around the world. This weekend I was in Honolulu where prime ministers
and presidents from the U.S., Japan, China, Russia, Philippines, Brunei, Chile
and other Pacific Rim countries gathered for the annual APEC (Asian Pacific
Economic Cooperation) convention. The city was filled with dignitaries,
motorcades, police, Secret Service men talking into their wristwatches and SWAT
teams on the rooftop of my hotel, along with closed roads and amazing traffic
jams. Let's hope the officials made progress because the Pacific Basin is
becoming increasingly more important in economic and geopolitical terms. A
number of Veteran Day's ceremonies were held in Honolulu by visiting
dignitaries at Punchbowl," the National Memorial Cemetery of the Pacific. Nov.
11 was originally the day of the Armistice agreement that ended World War I on
the 11th hour of the 11th day of the 11th month in 1918. As we go about our busy
week and get ready for Thanksgiving, please take a moment to acknowledge the
long line of Americans who have given their lives to preserve our freedom. Wall
Street Sector Selector actively trades a wide range of exchange traded funds and
positions can change at any time. Wall Street Sector Selector currently holds
positions in IYR, XLF and QQQ.
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