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Consumer Confidence is a Concern - Market Outlook

|Includes: DIA, QQQ, SPDR S&P 500 Trust ETF (SPY), SPY
Economically speaking, last week was quite a positive one… particularly on the housing/real estate front. Confidence scored a couple of decent victories as well. The slate is full for next week as well, with unemployment, construction spending, and factory orders on tap. See the table below for the full line-up.

That said, though consumer confidence was slightly better last month than the month before, it’s taken a concerning turn over the last five months.

Generally speaking, stocks rise and fall with consumer confidence. Over the last five months, the market’s been rallying, but confidence has been dwindling…. a condition that just won’t last indefinitely.

It’s too soon to react just yet, but it’s something to keep in the radar. Here’s a chart below that compares the S&P 500 to the Conference Board’s consumer confidence level:

Consumer Confidence

Some nasty news from
Dubai was enough to trip the market up during Friday’s half session, bringing a slightly different meaning to post-Thanksgiving ‘Black Friday’. The move lower was enough to pull stocks into the red for the week. We were due for a dip anyway – the news was just an excuse to start the inevitable slide.

S&P 500 Chart


The arc-shaped support and resistance lines we plotted a couple of weeks ago are still in play. The S&P 500’s peak at 1112 last week brushed the upper one for the fifth time since July. The lower one’s at 1034, where the index is apt to be headed now that the damage has been inflicted.

One thing to note – and this applies to all the indices – Friday’s bearish gap may be pressured for closure before the bigger pattern is repeated. That’s not a certainty though… just a factor to deal with. Either way, the pressure is on the bulls, and the wind favors the bears.

As for vital stats, the SPX closed at 1091.50, up 0.01% for the week.

NASDAQ Composite Chart112809-nasdaq

The NASDAQ lost 7.6 points for the week (-0.35%) to end at 2138.44. It was the second losing week in a row, and the fourth in the last six.

The root of the pullback was the same one mentioned in last week’s outlook… the composite index had run into a resistance line at 2205, forming its third node with that line. Stochastically overbought by that point as well, the deck was stacked against the market.

Since then, we got a bearish stochastic signal, and the NASDAQ is clearly moving lower after bumping into its ceiling. Though volume was still on the light side last week, for a holiday week it was still alarmingly high…. high enough to hint this is more than a blip.

From here, you could make the argument the composite is headed back to the key support, which will be around 2000 by the time the market catches up with it. The only problem with that is it would be a 7% dip from current levels, and about a 10% tumble from the peak. In the grand scheme of things though, that’s a fairly normal correction.

All that being said, once the composite is stochastically oversold again, a bounce is possible at any time…. not necessarily when that support line is touched. We’ll cross that bridge when we come to it.

DJIA Chart

The Dow fell 154 points on Friday (-1.47%) to end the week just barely in the red… -0.08% (a mere 8 points).

The failure to move significantly higher even further hardened the bullish trading zone, framed by red and support lines on the chart below. Right now, the upper one’s been brushed five times with the major peaks since August. The lower one’s been hit three times decisively (and once more indecisively). Assuming the market’s due to at least continue bouncing around in these confines, we can now expect the blue chip index to fall back to the lower support line, currently at 9875 (and rising moderately).

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