We are at the last trading week in December. The question on every trader’s mind is will we have the traditional Santa Claus Rally that begins in the last trading week in December?

Folks, last year I was able to predict the Santa Claus rally around December 9th. You can watch last year’s video that’s still up on my channel. I made 90% last December by calling the Santa Claus rally and jumping early. This December though, I’m going to lose big on the month. I was able to predict the Santa Claus rally in 2010 because of the major indices going into strong uptrends early in the month. This December I still have not seen that. The Dow has just gone into a strong uptrend but the other major indices have not. This means that the Dow is leading the other major indices on the swing move up. That’s not good. We want the Nasdaq or even the Russell 2000 to be leading the other major indices higher. When the Dow is leading, it speaks to the defensive nature, so far, of this swing move up.

The Nasdaq has a sidelines rating. As I talked about last week, the Nasdaq is lagging behind the other major indices. That’s not what we’d like to see in a swing move up that we can trade and make money on.

The S&P 500 has an uptrend rating. It is just a hair weaker than the Dow. It’s approaching that all important 1300 resistance. The volume falling over the last 3 days into the swing move up doesn’t give us a whole lot of confidence, at this time, that the S&P 500 is going have the energy to break through the 1300 resistance level. Nevertheless, the S&P 500 has a normal uptrend rating as it approaches the upper wall of the trading range.

The Russell 2000 has a very weak uptrend rally. Again folks, we want to see smallcaps leading on a swing move up. In fact, during this time of year, smallcaps should be leading the market. We just don’t see smallcap leadership yet and that really casts a huge warning signal over this recent swing move up.

So according to the trends of the major indices, the Bulls have a small advantage over the Bears going into trading next week. Let’s look at some market internal indicators and see if they confirm this small Bulls advantage over Bears going into trading next week.

The percent of stocks on the NYSE that are trading above their 50 day moving average has climbed to 61%. Folks, that’s a bullish bias. The percent of stocks trading above their 200 day moving average is at 38%, a bearish bias. Also, over the last 3 months, each time the percent of stocks trading above their 200 day MA has risen to close to 40%, the market has turned down. Therefore, keep your eyes on the important psychological level of 40%.

On the Advance Decline Volume on the Nasdaq, the Bulls have retaken the 0 line. This shows a bullish bias on the Nasdaq folks, which is conflicting with the sidelines trend rating. This is a temporary divergence. Either we will have the Bulls lose the 0 line, or the Nasdaq will move into an uptrend very quickly next week. Either way, something will give next week.

The TICK closed at 817 meaning that we had institutional traders buying last week. Now that options expiration has passed and tax selling is mostly done, it appears institutional traders are buying. What were institutional traders buying last week? Here are the top 5 performing sectors for the week:
1 = Energy (+5.23%)
2 = Financials (+4.86%)
3 = Industrials (+4.35%)
4 = Materials (+4.24%)
5 = Healthcare (+4.16%)

The VIX has a downtrend rating which is bullish. Just be careful here though. I got caught in a volatility squeeze last week when I tried to play TVIX. Volatility normally drops of going into the Christmas weekend. Nevertheless, the current downtrend rating on the VIX favors the Bulls.

So all the market internal indicators we track do favor the profit thesis that the Bulls have a small advantage over the Bears going into trading next week.

The U.S. dollar continues to be in an uptrend. This is keeping gold in a downtrend. It’s not only putting a downward pressure on gold, it’s pushing down the entire market. Don’t think that a rising U.S. dollar is good for the stock market. Right now, it’s not. This relationship will eventually change, but for now, the stock market is doing the inverse of the U.S. dollar, just like gold. The reason is because of the problems in Europe. Europe will pull down the world if countries default on their debt and can’t raise enough money in bond auctions to pay their bills. So as the Euro goes down as the European crisis continues, it’s pulling down the U.S. stock market as well. Thus, if you’re long anything in this market, you want the U.S. dollar to go down and the Euro to strengthen.

Gold continues to have a downtrend rating. It’s having trouble re-taking the 200 day moving average and it looks dangerously close to rolling over right here and taking the next leg down.

Fundamental analysis reports that moved markets last week were: Tuesday’s Housing Starts, Thursday’s GDP, and Friday’s Durable Goods Orders and Personal Income and Outlays reports.

The Housing Starts report showed that new housing construction is showing signs of life in November-although the pulse is still weak. Housing starts in November rebounded 9.3 percent after slipping 2.9 percent in October. The November annualized pace of 0.685 million came in higher than market expectations for 0.636 million units and is up 24.3 percent on a year-ago basis.

The GDP report showed that economic growth for the third quarter was more sluggish than previously believed and the change in the component mix will have economists rethinking their forecasts for the fourth quarter. The Commerce Department for its third estimate for third quarter GDP growth nudged its number down to 1.8 percent annualized growth from the prior estimate of 2.0 percent annualized. Market expectations were for overall GDP growth to be unrevised.

The Durable Goods Orders report showed new orders for civilian aircraft led to a huge spike in durables orders. Otherwise, durables orders were modestly positive. New factory orders for durables surged 3.8 percent, following a no change the prior month (prior revised estimate, down 0.5 percent). The November boost was much higher than the consensus forecast for a 1.9 percent jump.

The Personal Income and Outlays report showed personal income and spending posted modest gains in November. Meanwhile, PCE price inflation was soft. Personal income in November grew 0.1 percent, following a 0.4 percent increase the month before. November’s gain fell short of analysts’ forecast for a 0.2 percent rise. However, the wages & salaries component slipped 0.1 percent after a 0.6 percent increase in October. The rise in personal income was led by gains in rental income and dividends combined with a decline in contributions for government social insurance.

There are no major fundamental analysis reports being released next week which should move the markets.

Monday, December 26 2011, the stock market will be closed for Christmas.