Thanksgiving week tends to be bullish for stocks but gains were muted. Investors had little stomach left after feasting on stocks the last several weeks. The S&P 500 did manage to eke out a small gain for the week stretching its win streak to eight weeks in a row. That's the longest weekly win streak since January 2004.

It was a different story for the NASDAQ composite and the small cap Russell 2000 indices, both continue to set a string of new highs. Speaking of new highs the digital currency Bitcoin was making headlines with the value of a Bitcoin trading above $1,200 on Friday before paring its gains. Nine months ago the value of a Bitcoin was only $35.

Semiconductor and biotech stocks performed well with a +1.1% gains for each industry groups last week. Housing stocks were some of the strongest performers with a +2.7% gain. Energy stocks didn't do so hot. News that the US and EU were relaxing some sanctions on Iran sent the price of crude oil lower, which posted a -2.0% drop for the week. Oil-related stocks tumbled. The oil index fell -1.9% and the oil services index plunged -2.5% for the week.

Economic Data

The trend of uneven economic data in the U.S. continued. The November reading for the Consumer Confidence index fell from October's upward revised 72.4 down to 70.4. This is a new seven-month low. Economists were expecting an up tick to 72.6. Yet this news was overshadowed by headlines that the final November reading for the University of Michigan Consumer Sentiment survey rose from 72.0 to 75.1.

Another positive surprise was the Chicago PMI. Economist were expecting a drop from 65.9 in October to 60.0 in November but the November reading came in at 63.0. That's the first time in almost two years the Chicago PMI has held above the 60.0 level for two months in a row. Elsewhere the durable goods orders for October were a disappointment. The headline number fell from +4.1% growth in September to -2.0% in October. The core durable goods number came in worse than expected with a -1.2% drop following a -1.4% drop in September.

There were a number of data points for the real estate sector. Build permits are trending higher with the number of permits rising from an annual pace of 926,000 in August to 974,000 in September. The trend continued with a rise to 1.034 million in October, which marks the highest level in five years. Another positive surprise was the Case-Shiller 20-city Home Price index that came in better than expected with September's reading at +13.3% gain year over year. This sudden surge in home prices is starting to raise concern. Robert Shiller told CNBC that this year over year momentum in the housing market can't be trusted.

The pace of pending home sales was also a disappointment. The average rate for a 30-year fixed rate mortgage fell from 4.47% in September down to 4.25% in October yet pending home sales fell -0.6% in October. That's the fifth month in a row that pending home sales have fallen.

Overseas Data

The mixed economic data continued overseas. The Eurozone said their unemployment rate ticked down from its all-time high of 12.2% to 12.1%. Meanwhile consumer confidence in the Eurozone slipped from -14.5 to -15.0. Germany said their unemployment claims came in higher than expected but their unemployment rate was unchanged at 6.9%. Unfortunately consumer spending in Germany slipped -0.2% and retail sales in Germany inched down -0.8%, which was worse than expected. In positive news, after nine consecutive quarters of negative economic growth the country of Spain said their economy grew +0.1% in the third quarter. Ratings agency Standard & Poor's raised their outlook on Spain to "stable". S&P also commented on the Netherlands and lowered the Dutch credit rating from AAA to AA+.

Japan released a lot of economic data last week. The country's retail sales rose better than expected with +2.3% year over year gains. Japan's manufacturing PMI advanced from 54.1 to 55.1. Their CPI came in a +1.1% year over year. Yet their industrial production only rose +0.5%, which was significantly below expectations. Japan's NIKKEI index hit six month highs early last week after the Bank of Japan governor floated the idea of negative interest rates to deter saving and encourage more spending and investment (this would also encourage more money into the stock market).

One of the biggest stories of the week was the ongoing escalation between Japan and China over the Senkaku/Diaoyu islands. As discussed in last week's market commentary China unilaterally declared the air above these disputed islands as a new "air defense identification zone'. The countries have been bickering over these uninhabited islands for years. It's believed the sea around them is full of potential oil and gas on top of the fishing resources in the area. Both the U.S. and Japan ignored China's air defense zone. The U.S. flew unarmed B-52 bombers on Monday. Japan flew some fighter jets through the area as well. China scrambled military aircraft in response. This is a dangerous escalation. If someone pulls the trigger and sparks a military conflict between China and Japan the equity markets will suffer for it.

Holiday Shopping

In other news we are going to continue to hear about the retailers and estimates for the holiday shopping season. There seem to be two distinct camps. One side of analysts believes we could be facing one of the worst holiday shopping seasons in years thanks in part to six fewer shopping days and a tired U.S. consumer. The other side believes that this year will be healthy and much better than expected. There have been a number of consumer polls. One showed that the average consumer plans to spend about 10% less this year than last. Another forecast showed that foot traffic into brick and mortar stores is expected to fall -11% this year. Yet online sales are expected to hit another record. According to Forester Research we could see online sales in the U.S. hit $78.7 billion. That would be a +15% increase over 2012.

This year there were a number of headlines about major retailers opening up earlier and earlier on Thanksgiving night. A number of consumers found this distasteful and there seemed to be a growing backlash about retailers not respecting the Thanksgiving holiday. Yet estimates suggested that over 30 million people started their holiday shopping on Thanksgiving. That compares to almost 100 million people who were expected to shop on Black Friday. According to Wal-Mart consumers were hungry to start their shopping on Thursday. Between 5:00 p.m. and 10:00 p.m. on Thanksgiving night WMT said they had over 10.0 million registered sales across the U.S. and their website had over 400 million pages views on Thanksgiving.

Monday will be Cyber Monday, which is Black Friday for many online retailers. The idea is that everyone returns to work from their Thanksgiving holiday and uses their office high-speed Internet connection to order gifts online after window shopping all weekend. That may have been true back in 2005-2006 but with more and more homes with high-speed connections there is less of a need to wait to get to work to start shopping. Of course marketers will not let a new tradition like Cyber Monday go to waste and there will be plenty of promotions across the Internet.

Major Indices:

One point. The S&P 500 index added 1.1 points for the holiday shortened week. That was enough to stretch its gains to eight up weeks in a row. Lack of momentum could have been a factor of fewer market participants since so many investors were on vacation last week or it could be buyer exhaustion. The path of least resistance is still up but eventually the market will see another correction lower.

The 1800 level should be support but it's too close. I would look for support near 1780 and below that the 1750 level. If the rally resumes then we can watch for likely resistance near 1820 and 1850. Year to date the S&P 500 is up +26.6%.

chart of the S&P 500 index:

The NASDAQ composite continues to race higher. This index broke out past the 4,000 level last week and kept right on going. These are new 13-year highs. Broken resistance at 4,000 should be new support. If that level fails then look for 3950. Overhead resistance is probably the 4100 mark. Year to date the NASDAQ is up an incredible +34.4%.

chart of the NASDAQ Composite index:

The small cap Russell 2000 continues to show relative strength with a breakout to new all-time highs. The index high on Friday was a test of a new trend line of higher highs (see chart). The $RUT is probably short-term overbought here. Look for support near 1120. If that level fails then the 1100 level and its 50-dma should offer support. The 1160 and 1180 levels are potential resistance. Year to date the $RUT is up +34.5%.

chart of the Russell 2000 index

Economic Data & Event Calendar

It's the beginning of a new month. That means it's a busy week for economic data. Analysts are expecting the November reading for the national ISM manufacturing data to be flat. The nonmanufacturing ISM index due out on Wednesday is expected to rise. The ADP report on Wednesday is expected to improve. The real event this week is Friday's non-farm payrolls (jobs) report. Last month the jobs report surprised everyone with +204,000 new jobs in October. This time analysts are expecting +175,000 new jobs in November. Another big surprise over 200K could renew worries that the Federal Reserve may taper their QE program sooner than expected and that could be bearish for stocks.

We'll also see the newest estimate on U.S. Q3 GDP growth. Economists are expecting GDP growth to narrow from the first estimate of +2.85% down to +2.8%. Another big event for the week will be the European Central Bank's (ECB) decision on interest rates. Plus ECB President Mario Draghi will hold a press conference after their decision is released.

Economic and Event Calendar

- Monday, December 02 -
ISM index (for November)
construction spending
Eurozone manufacturing PMI data

- Tuesday, December 03 -
auto & truck sales for November

- Wednesday, December 04 -
weekly MBA mortgage application data
ADP Employment Change report
new home sales
ISM services index
Federal Reserve's Beige Book
Eurozone services PMI data

- Thursday, December 05 -
Weekly Initial Jobless Claims
European Central Bank (ECB) interest rate decision
Press conference for ECB President Draghi
U.S. Q3 GDP estimate (second estimate)
factory orders
Bank of England interest rate decision

- Friday, December 06 -
personal income and spending
Non-farm payrolls (jobs) report for November
University of Michigan Consumer Sentiment

Additional Events to be aware of:

Dec. 17th - FOMC meeting & economic forecasts update
Dec. 17th - post-FOMC meeting Ben Bernanke press conference
Dec. 24th - U.S. stock market closes early
Dec. 25th - U.S. stock market closed for Christmas

Looking Ahead:

Looking ahead the challenges for the market remain the same as last week. Investors are overwhelmingly bullish, which as a contrarian indicator is actually bearish. Fears that the Fed might taper sooner than expected hover in the background. A better than expected jobs report on Friday could inflame those fears. Congress is supposed to have a new budget deal done by Friday, December 13th. Odds of congress meeting that deadline is likely zero. The rhetoric out of Washington could put a damper on investor sentiment. The market also faces another FOMC meeting on December 17th. If the Fed does announce a taper at that meeting it will spark a sell off.

Fortunately the calendar does favor the bulls. The first couple of days in December tend to be flat or down but the next three weeks are usually up. The market expects a Santa Claus rally every year and that is supposed to start the first week of December. Historically December is the best month of the year for the markets. Of course this year we have the congressional budget deadline and FOMC meeting as potential land mines that could destroy any Santa Claus rally.

Another contrarian warning signal is margin debt. We've been hearing about record high margin debt for weeks. At $412.5 billion, the margin debt on the NYSE is an all-time record high. It's up +13.2% for the year but it is up +50% from January 2012. To help put this into some perspective current margin debt equals about 2.4% of U.S. GDP. That compares to margin debt hitting 2.6% in July 2007 and 2.8% in March 2000. We didn't pick those dates out of thin air. Both of those marked major market tops. That's why so many people are keeping a cautious eye on margin debt levels. The risk is that so many investors own stocks on borrowed money that when the market does see a decline it could be exaggerated as these traders rush to sell and lock in gains or reduce their losses.

Another worry is investor sentiment. Many have called the current rally one of the most hated rallies in history. Too many fund managers have underperformed the major indices. They will likely chase stocks higher into year end. However, bearish sentiment has been sinking as more and more investors turn bullish. The latest poll puts the number of bearish investors at the lowest level since 1987. That should be a worrisome indicator that traders are too bullish.

Do all these concerns mean we should sell now? Not necessarily. We still expect the market's overall trend to remain higher through year end. That's assuming the Fed does not taper at its mid December meeting. It's also assuming that geopolitical issues like the escalation between Japan and China or Iran's nuclear drama doesn't get any worse. It does mean that we should be aware that there are a number of factor flashing potential warning signals. After an eight-week rally in the S&P 500 we're definitely due for some profit taking. Can the index make it nine up weeks in a row? Of course it can.