The technicals are singing
Jingle Bells as year-end comes
Volume moves positive and weekly stochastic is on a buy
Despite all the valid concerns over the Fiscal Cliff, the recent 9% sell-off has set
the market up for the traditional seasonal year-end rally, and possibly carrying
over in to a January Effect rally. Our Volume Intensity Model (VIM) has moved
positive and the weekly price momentum stochastic model has given an oversold
buy reading similar to June ’12 and July/Sept ’11. The market has regained the
200-day moving average and the 1405 level. The next big hurdle is 1435. Above
this level would refresh the potential for a sustained rally to target a move toward
1450-1500. Important support to hold is the 200-dma at 1384.74. However, 2013
is setting up to be volatile, in our view, as the negative divergences are still in
place with market breadth and transports not confirming the September highs.
Remember ’07-‘08 resistance a big hurdle
The trading range from the 2007-2008 S&P 500 highs is significant overhead
supply for the market. The market should face resistance into the area of 1500-
1576, but it is still technically achievable to reach 1500. But we are likely to
become very cautious at this level if the negative divergences are not resolved.
This aging bull market will be four years old in March 2013 – the average age of a
bull market run is four years. We expect Mega Caps to maintain relative
outperformance next year even in a deep correction. We recommend holding
these stocks for the long-term.
Technology the most oversold & shorted – NDX also short
Technology is the most oversold and shorted sector in the S&P 500 and is the
catch-up trade into year-end and possibly into January. The NASDAQ 100, which
is a Technology heavy index, has a net short large speculator CFTC position. We
expect the NDX to outperform the S&P 500. BofAML Buy or Neutral-rated
technology stocks with good technicals and statistically high short positions are
ADBE, CRM, EA, FSLR, KLAC, and RAX.
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