THE BOTTOM LINE:

The market technically had continued to maintain a bullish trend and in terms of the S&P 500 (SPX) ability to hold above 1400 or close to it could suggest that the Market expects that January and a new Congress will make it easier to find agreements. The 'technicals' here are hostage to the likelihood that what our policy makers do or don't do will send the U.S. back into recession. It wouldn't take much. We're holding in a recovery mode by a rope if not a thread.

It's always been the case that the charts forecast what's going to happen best of all in my opinion, which has been borne out most of the time over the many market cycles I've followed.

However and of course, trend direction can get hitched to the complete unknown, especially when it comes to key government policy on spending and taxes. When that happens, it gets difficult if not impossible to forecast the trend reliably using either fundamental OR technical analysis. Outcomes become 'gambling' and I almost always resist novice types who say the market and stocks are 'gambling' (not if you learn and know what you're doing!) Once in a while even usually Market-ignorant folks may get it right!!

The key technical indicators I use were suggesting that the RISK of a correction was growing, especially the approach of the 13-day Relative Strength Index or RSI to what I consider to be an overbought extreme. You can see that on the charts that follow. The RSI wasn't in the exact 'typical' danger zone but it was closing in and we knew that there was the definite possibility of risks coming out of Washington. The other of my key indicators HAD flashed a 1-day warning of a different type of 'overbought' situation, that of extreme bullishness as suggested by my call to put ratio (CPRATIO) indicator which showed one day of such an extreme AT the recent top. You'll see this indicator (just) on the SPX and Nasdaq Composite charts below.

What these two key technical indicators suggested was RISK of a correction, not a sell 'signal' such as would be suggested by a definite bearish chart patterns (e.g., a double top, reversals at a prior line of resistance, etc.) PLUS a definite RSI extreme PLUS a definite bullish sentiment extreme.

I go through all this as a teaching moment of a situation suggesting 'standing aside' from any heavy directional trade(s). The Subscribers I've heard from mostly did that or were lightly into bullish strategies only. If you adopted bearish strategies, I myself can't concur there as what went down on the lack of an GOP/DEM agreement, can go up sharply overnight ON such an agreement. Yes, dear readers, it's a crap shoot!

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) chart has turned mixed but has to date only pulled back to support suggested by a return to the previously penetrated down trendline. So, near support is indicated and highlighted (green up arrow) in the 1400 area currently. Next support looks like 1375 and then at the prior (down) swing low at 1350. Major support begins at 1300.

Near resistance is at 1420, then back up at the recent highs at 1450.

When SPX got to 1450 there was a 1-day 'extreme' in bullishness suggested by my sentiment indictor; as seen at the bottom of the SPX chart. I wondered at the time about this. The two day churn at the same intraday high, plus heavy equity call activity relative to puts, did seem to be suggesting getting out of calls and onto the sidelines. Without an actual agreement, rather than hopes of one, what was the probability of new highs above 1450? Low, at best.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart looked most bullish when it was trading above 640 as I wrote last week. However, only progress "on the 'cliff' front" as I noted last week would have suggested a test of the cluster of prior highs made in Sept-early-Oct. Instead, stubborn resistance on the approach to the 660 area, resistance implied by the low end of the mid-September to mid-October trading range, was the stopper.

Near resistance at 650 is suggested, extending to 658-660. I've highlighted support in the 633 area, on the return to the prior down trendline, with next support suggested at 620, extending to the prior 611 intraday low.

If support is found in OEX in the low-630 area, especially on a Closing basis, this current pullback looks fairly nominal and 'normal'. We could see a 630-650 trading set up in the near term. It's impossible to tell at what level (630 to 600?) that OEX 'discounts' failure to reach a GOP/DEM agreement THIS year.

I've come to view of letting current tax rates expire; then fixing them in 2013 would be a tax CUT, which seems to be the only thing acceptable to the no tax increase forces in Congress. Makes sense if you believe what they SAY (I do), just please fix this in January!

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) Average has retreated to a minor prior low at 12930, breaking a key near support at 13000. 12800 is next support in my estimation.

Surveying the 30 individual Dow stocks, we've seen them all slipping a little and no group of the 30 maintaining or regaining a strong uptrend, which is not a good prescription for another strong rebound based on what the 30 charts are suggesting. Small recovery rallies in most to all based on favorable political news could get INDU back up to 13200 again, which is a key resistance. 13100 looks like immediate overhead resistance. 13350 is key resistance based on recent highs.

I have no trading suggestions. Per my initial 'bottom line' comments, it's a crap shoot. If you know what the political players will do, write me! I can generally get a fix on the trend when the trend is solely or mostly influenced by 'normal' market influences like the economy, earnings prospects, etc.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) chart has fallen back below its down trendline which is bearish. The intermediate-term trend reverses to down if the prior downswing low Close is exceeded; that prior closing low is at 2836.9; call it 2837.

I've highlighted near support at 2950, with next support beginning at 2880 extending to 2860. Near resistance is at what was prior key support at 3000; actually I'd say near resistance is at 3000-3020, with next resistance at 3035, extending to the 3060 area.

COMP looks to be headed lower, but it could hold support at 2950 and rebound to 3000 even. Again, I'm out of my league some here but from the charts in general I've surmised that the professional money is more on WHEN an agreement is reached, not IF one is; January is still a strong expectation.

Friday saw an emotional reaction that things are worst than they probably are in terms of there still being time for action. Bearish 'sentiment' has not jumped all that much in terms of any big pick up in total stock put volume relative to calls.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) Index has turned near-term bearish along with the Composite, but I suggest a focus on whether NDX holds key near support around 2600. Next chart/technical support is in the 2550 area, with fairly major support beginning at 2500.

Near resistance is now back at the prior down trendline which really only got bested over a 3-day period so it was only a quite limited but un-sustained upside 'breakout'. NDX's resistance trendline intersects at 2654 currently. Next resistance is at 2700-2715.

NDX tech bellwether Apple Computer (AAPL) isn't performing too badly by bullish lights. This to me is that the stock hasn't yet fallen below its long-term weekly up trendline support, which is at $500 currently; AAPL closed the past week at 509.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) Index has turned near-term bearish along with the Composite, but I suggest a focus on whether NDX holds key near support around 2600. Next chart/technical support is in the 2550 area, with fairly major support beginning at 2500.

Near resistance is now back at the prior down trendline which really only got bested over a 3-day period so it was only a quite limited but un-sustained upside 'breakout'. NDX's resistance trendline intersects at 2654 currently. Next resistance is at 2700-2715.

NDX tech bellwether Apple Computer (AAPL) isn't performing too badly by bullish lights. This to me is that the stock hasn't yet fallen below its long-term weekly up trendline support, which is at $500 currently; AAPL closed the past week at 509.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) chart remains bullish in the face of a minor recent pullback, so far at least, unlike the mixed S&P and near-term bearish patterns of the Nasdaq. RUT stocks often are on buy lists for January and may be reflecting this seasonal tendency.

The Russell hasn't yet closed below its 21-day moving average at 832 and is above its 50-day average. 820 is near support, extending to 813, then even more so at 800.

Near resistance is highlighted at 840, with next key resistance at prior recent intraday highs at 852.

RUT continues to look like it could challenge prior highs above 860 if the Market gets good news on some aversion of the fiscal cliff situation. RUT acts like there will be some bullish news ahead. Wishful thinking? Stay tuned!



GOOD TRADING SUCCESS!