The Focus of the Week
The market flung higher on Friday, and the burst higher was enough to bring the indices back to positive for the week. Volume was largely unimpressive yet again, but the ability of the bulls to build on the huge rally from earlier in the month was exceptional.
The indices are in a perfect position to rally up until the end of the year. Over the past week the market has consolidated and given up very little ground in the process. The consolidation occurred on low volume and above strong support zones.
On Friday, the indices rallied nicely and also found support at their 10-day moving averages. The 10-day moving average is very frequently used by momentum traders to determine trend.
The trend is thought to be more bullish if the index is above the 10-day moving average and when the moving average has a positive slope. Additionally, it is bullish if the 10-day moving average is above a longer dated moving average, like the 200. If all three conditions are met the trend is likely very strong.
Since the indices broke above the 10-day moving average on the final session of November, the market has continuously moved higher. Last week the indices tested that moving average and it held. Until the 10-day moving average fails, the short-term trend favors higher highs and a continuation of the bullish move that started three weeks ago.
Last week the big focus was on Europe and very little attention was paid to much else. While Europe will continue to be of interest, U.S. economic data picks up dramatically starting tomorrow.
On Tuesday retail numbers for November are announced before the open in the morning. Then the FOMC rate decision will be announced in the afternoon. The retail numbers will be more important than normal because investors will use last month's reading to gauge what to expect from holiday spending in December.
In addition to the retail sales data on Tuesday, inflation data is also released later in the week. On Thursday and Friday, PPI then CPI data will be announced. The PPI and CPI are not as important as they used to be, but they still must be monitored for unusual activity. A big jump in either would result in higher prices for manufacturers or the consumer, both of which would have a negative impact on spending patterns.
Aside from the economic data, I'll also be watching gold this week. The price of gold has quietly moved lower while the market moved higher. And the yellow metal still looks like it has room to fall by another 10%.
Where do you think gold is headed? Please drop me a line sometime today at marketforecast@wyattresearch.com.
