Retailers did well but Black Friday ended in the red for the Dow and S&P.

Market Statistics

The Dow rallied +45 points to a new high early Friday but selling accelerated into the close to knock the Dow -10 points into the red. The S&P rallied to 1,813 but collapsed back to 1,805 and a small loss at the close. The Nasdaq was the big winner with a +15 point gain but still -10 points off the highs. The Russell 2000 kept its record high streak going with minor gain to 1,143.

With the Russell and Nasdaq posting gains and finishing at new highs I am not too worried about the minor decline in the Dow and S&P. It was a minor sell program at the close on a low volume day. Thanksgiving week has a reputation for being choppy but with a slight upward bias. However, Black Friday is typically seen as the beginning of the Santa Claus rally that runs until Christmas.

There were no economic reports on Friday and it was all retail news all day long. Apparently shoppers were out in force and various analysts tried to predict how Friday sales would translate into holiday trends.

IBM tracked 800 e-commerce sites and found only about 1% of visits came from social networks. This should cause retailers to seriously reconsider advertising budgets for social network advertising.

IBM said overall Thanksgiving online sales were up +10% over last year. The average online order was $132.13 compared to $132.57 in 2012. Mobile platforms accounted for 36% of all online traffic, up +30% from 2012. Mobile sales were more than 23% of all online sales. Obviously "show-rooming" is alive and well where shoppers look at the item in the store then use their mobile device to buy it cheaper online.

IBM said smartphones accounted for 23% of all online traffic compared to 13% for tablets. However, tablets accounted for 13% of sales compared to 9% for smartphones. Tablet orders averaged $126.26 compared to $113.19 for orders from smartphones. However, Apple mobile devices were responsible for 17% of mobile orders compared to 5% for Android devices. Apple devices have accounted for 24% of all online shopping traffic so far compared to 10.5% for Android. Facebook referrals averaged $106.86 with Pinterest orders averaging $102.79. Facebook referrals are converting sales at a rate of 84% more than Pinterest referrals.

Overall 33 million people shopped on Thanksgiving compared to estimates of 97 million on Black Friday.

Forester Research predicts there will be $78.7 billion in U.S. online sales this season, up +15% over 2012. The company expects 167 million shoppers will do their holiday shopping online and spend an average of $472 each.

Walmart (WMT) had protests scheduled at 1,500 stores around the country with workers and sympathizers complaining that the starting wage of $8.81 should be raised to $12.50. The number of actual workers protesting was roughly 1 employee for 15 protestors with the rest bussed in by unions from elsewhere. Walmart said the protesters were misreporting the facts. The $8.81 is the average starting wage but the actual average wage is $12.81 plus healthcare, bonuses, education benefits and access to 401Ks for full time employees.

The protests did not seem to slowdown Walmart shoppers. Walmart said they had 10.4 million sales between 5:PM-10:PM on Thanksgiving. Late Friday Walmart said it had been their "most successful Black Friday in Walmart history."

A Neilsen research survey showed that 85% of those polled planned to skip retail store shopping on Black Friday and 46% planned to go online and shop on Cyber Monday, up from 30% last year.

Ebay said at midnight on Thanksgiving they were selling an average of one iPad Mini per second. That is a lot of selling for the middle of the night and nobody had to stand in line for hours or battle crowds.

The economic calendar for next week is busy with multiple events that could move the market. The national ISM Manufacturing for November is expected to be flat and that is actually positive. Several regional reports have been volatile with some sharp declines. Holding the line at 56.5 in expansion territory would be bullish.

The ISM Nonmanufacturing on Wednesday is expected to rise sharply from 55.4 to 59.7 for November. Service businesses normally surge in Q4 as a result of the holiday activity.

The ADP Employment on Wednesday will be the first look at November employment and estimates are for a slight gain to 150,000 from October's 130,000 headline number. The Nonfarm Payrolls on Friday are expected to show a gain of +175,000 jobs compared to the 204,000 gain in October. After the disclosures last month about faked jobs numbers it will be interesting to see if there is any material change from October.

The payroll report is considered the biggest report of the month and the next FOMC meeting is on Dec-17th so this report is critical. There are a lot of traders worried the number could be well over the 175,000 expectations. If that was the case, say something in the 225,000-250,000 range, the fear of tapering would come back strong. The expectations for October were in the +125,000 range and the number surprised everyone at +204,000. If that happened again the market impact would be ugly.

The GDP revision on Thursday is expected to come in at +2.8% and just slightly below the 2.85% print on the prior revision. This level of activity surprised everyone when it was first released. Nobody expected Q3 to be this strong and I would not be surprised to see it revised to a lower level of activity. Q4 GDP is currently being forecast at +1.9% (CRM) said it gave its CEO a +20% raise to $1.44 million for FY 2015 with a target bonus of $2.88 million. Not a big deal and he seemed under paid compared to others. However, they also awarded him $29 million in stock options for fiscal year 2015 making him overpaid. CRM shares declined on the news.

One of the headlines on Friday was the near record margin debt. Currently margin debt has risen to $412.5 billion on the NYSE. That is a 13.2% increase YTD but it is 50% higher than January 2012. Investors are so confident the market is going higher they are willing to buy stocks on margin and risk being caught short if a market correction occurs. Margin debt has risen to levels not seen since October 2007. If there is ever a market event that triggers margin calls this level of debt could cause a significant acceleration of any decline. Bull markets are not indestructible and that event will eventually occur. Leveraged lending on little or no collateral has risen to $969 billion, up 29% from year ago levels and second only to the highs from 2007. (AMZN) is expected to be the big winner this holiday season. Shares gained +7 to another new high on Friday. The stock is accelerating higher despite the nearly $400 price tag. You can literally buy nearly every retail product available in the U.S. market on Amazon and have it shipped to you free in two days under the Amazon Prime membership program.

However, it is not the retail sales that are pushing Amazon shares higher. Most people don't realize it but Amazon Web Services (AWS) is the largest cloud service in the world. It is seven times larger than VMWare, EMC or Rackspace. Stackdriver, a Bain Capital Ventures backed cloud computing management start-up released a very comprehensive survey on AWS spending. They surveyed 15,000 people at developer's conferences on their spending plans. Enterprise spending on AWS has doubled in 2013 and is expected to surge even higher in 2014. More than 23% of respondents said their monthly spending on AWS was over $100,000 a month. That is 11% more than in 2012. More than 43% were spending between $5,000 and $50,000 per month, up from 36% in 2012. More than one-third of the attendees said they were spending more than $50,000 a month. Some Amazon executives believe AWS revenue will one day exceed revenue from Amazon's retail website. Those numbers boggle my mind.

More than 49% said they were going to increase their public cloud infrastructure space. The same survey showed Rackspace cloud usage decreased from 18% to 11% and VMWare fell from 16% to 21%. Since these survey numbers have been made public RAX has been in decline and the reason is obvious. I really wish Amazon would split their stock so the option prices would come back down to earth.

Archer Daniels Midland (ADM) fell -3% after the Australian government rejected the company's bid to buy the rest of GrainCorp LTD. ADM had bid $3.1 billion for the 80% of the company it does not already own. The government rejected the proposed buyout saying it would reduce competition and impede growers access to grain storage and distribution. ADM said full ownership would help expand its agriculture offerings in the Middle East, Africa and Asia.

Moody's upgraded the credit rating for Greece two notches from C to Caa3. That would not be so unusual except it came just hours after the government said talks with bailout creditors had hit a snag that would push negotiations on reforms back at least a week.

Greece is on track to balance its budget this year as long as you don't count interest payments on the $327 billion bailout they received in 2012. Greece will not get any more money from the Troika unless they agree to another round of stringent cost cutting reforms. You would have thought Moody's would have waited until after the reforms were named and voted on before raising their credit rating. If you want logic don't look at the ratings agencies.

China's official manufacturing PMI will be released on Sunday and it is expected to ease slightly from 51.4 to 51.1. Anything over 50.0 represents economic expansion. From the recent spike in the Baltic Dry Index it would appear there is expansion underway not only in China but elsewhere in the world. The dry shipping index represents the cost to ship dry goods in bulk by freighter anywhere in the world. The dry bulk freighters carry things like coal, iron ore, grain, etc. A rise in the shipping price generally means more goods are being shipped. The Dry Index is calculated every day based on the number of available ships and the demand for cargo to be shipped. If there is more cargo than available ships the price goes up. Conversely if multiple ships are competing for the same cargo then the price goes down. The cost to ship dry bulk cargo has nearly tripled since January.

For investors this works as a leading indicator of rising economic activity and suggests 2014 should be stronger than 2013.

Need evidence of a potential market top? What better contrarian evidence could we have than Alan Greenspan speaking out last week and saying there is no evidence of a bubble at Dow 16,000. "This does not have the characteristics, as far as I am concerned, of a stock market bubble. It could come out that way but I don't see it at this stage." This is the same Fed head that did not see a bubble in the housing market in 2007. He said "economists who forecast 2.5% to 3% growth next year may be too optimistic. There is no doubt there's been some acceleration going on, but there's an overall suppression that is going on in the economy largely because of lingering uncertainty." He expects growth in the 2% range but then he has never been right before.

Current Fed head Ben Bernanke does not see a bubble in asset prices and Janet Yellen echoed those feelings in her own comments to the Senate Banking Committee. I guess that makes it official when three Fed heads all agree. That could be the mother of all contrarian indicators.

Greenspan also said "Eventually we are going to have to stop expanding (the Fed's balance sheet) and start bringing it (stimulus) in. That process is going to move interest rates higher, by an indeterminate amount, and that is going to create major problem for the Fed as it always has in the past." That would be a massive understatement and I definitely agree with him on that forecast.

If anyone doubts that QE has inflated the equity market they only need to look at the chart below. The market rises when QE is active but the market goes sideways to down over the periods where QE was on hold. Since the Fed began buying $85 billion a month at the beginning of 2013 both lines are nearly straight up. The blue line is the total treasuries held by the Fed and includes mortgage backed securities. What do you think will happen when QE is removed?

December is going to have its share of potholes. The November Nonfarm Payrolls will be the first hurdle. If those are stronger than expected the FOMC meeting on the 17-18th will be a crisis point as traders worry over a QE announcement. Lastly the budget deadline of December 13th will be a challenge. There is almost no chance the partisan team assigned to come up with a solution will actually agree on anything. This will restart the fiscal follies in Washington and lead to the end of the continuing budget resolution on January 15th. While I doubt there will be another government shutdown there will be a headline war in Washington that will weigh on the markets.

Lastly there is the debt ceiling return on February 7th. If we make it through December intact with no QE announcement then the January 24th FOMC meeting becomes the focal point. That will be after the early January Nonfarm Payrolls report and budget battle and the Fed could be feeling a little better about the economic direction. They will test the debt ceiling winds ahead of the meeting and could decide to make a change to QE. If not in January then the next FOMC meeting is March 19th and that could be a major challenge for the markets since it is well past the Washington deadlines and there will be two more payroll reports added to the mix.

We may not have to worry about market bubbles if the standoff in the South China Sea continues to escalate. On Friday Japan sent 7 flights of 10 planes each consisting of E-767 AWACS, P-3 Orion anti-submarine and maritime surveillance planes and F-15 fighters into the new ADIZ (Air defense identification zone) declared by China. (The U.S. flew unarmed B-52 bombers in earlier in the week.) China retaliated to the Japanese incursion by scrambling SU-30 Flanker C fighters and Shenyang J-11 Flanker B+ fighters along with other aircraft to intercept. No shots were fired but the escalation is clearly evident. They are going to keep playing this one-upmanship until somebody actually pulls the trigger and a shooting war will break out. At stake are the energy resources under this area of the South China Sea that is claimed by both China and Japan. Since Japan is now an ally of the U.S. I would suspect we could get drawn into the conflict.

Japan has demanded an immediate withdrawal of the new ADIZ and a return to prior boundaries. China warned "we are willing to engage in a protracted confrontation with Japan. Our ultimate goal is to beat its willpower and ambition to instigate strategic confrontation against China." Note that China is the one that started the conflict but they are blaming it on Japan.

The S&P closed negative on Friday and gained only 1.4 points for the week despite hitting new highs. The Dow only gained +21 points for the week. I am not really concerned about the weak performance because turkey week can be volatile. It was month end and there were probably some minor portfolio changes underway before everyone headed out for the holidays.

Next week is a different story. Since 1945 the S&P has averaged a gain of +1.8% between Thanksgiving and New Years. The index posted positive gains 71% of the time. When the market was up big ahead of Thanksgiving the average gain has been slightly higher at +1.9%. Since 2009 the post Thanksgiving period has seen gains averaging +4.4% and gains every year. The last time the market declined after Thanksgiving was 2005. These statistics came from Bespoke. Past performance is no guarantee of future results.

The minor moves all week left the S&P right where it started so there has not been any change in the charts. The long term uptrend resistance at 1,810-1,812 is still intact. We did establish some short term support at 1,803 from all the intraday dips.

One point to ponder is the length of the current rally. The first bull market rebound out of the recession lasted 784 days and gained +694 points. There was a -21% decline using intraday levels in 2011. The S&P rebounded starting on October 3rd 2011 and has now risen for an EQUAL 784 days and nearly equal +675 points. (Hat tip to Scott Krisiloff) I am not so worried about the length of the rally since the average bull lasts 915 days. I am more concerned about the points and the velocity of the rally. The S&P is now up about +27% YTD and while I expect some additional gains I am worried about January. It is time for another correction and given the expected January events it would be the perfect month.

I am more concerned about the Dow and its overextended condition. The Nasdaq and the Russell 2000 are historically the best performers in December and for them to go up we could see funds raise cash by selling the large caps. The Dow is fighting resistance at 16,100 and it was solid all week. Friday saw an intraday spike to 16,174 but the decline was about as fast as the spike to close at 16,086.

It will be interesting to see how the indexes perform on the first couple days next week. Historically the first couple days of a month are bullish for the Dow but not so for December. The Dow has a history of minor declines on the first two trading days. However, past performance...etc.

The Nasdaq did not give back all its gains on Friday. The +25 point midday rally was reduced to a +15 point gain at the close but it was still a gain to a new 13-year closing high and a whopping +68 point gain for the week. Apple, Priceline and Amazon were the three big caps powering the move. The Nasdaq built a decent base in early November and should not be susceptible to a sharp decline. We should see mild support at the 4,000 level if it is retested. If we were to see some serious profit taking I would expect 3,895 to hold.

The Russell 2000 also had a great week heading into what is normally a strong month for small caps. The Russell gained +1.6% for the week and is now up +34.6% for the year. Somewhere there is a small cap correction waiting to happen but I don't expect it until 2014.

The Russell has moved to touch uptrend resistance and the 1,150 level could cause some profit taking. I do not expect it to return to strong support at 1,100 so I would be a dip buyer of the Russell ETF (IWM) next week.

The Dow Transports closed at a new high on Wednesday at 7,255. The Transports are now confirming the highs in the Dow Industrials and with oil under $93 and the holiday shipping and travel season in full swing they should continue higher.

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