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InvestmentHouse Weekend Update:

http://www.investmenthouse.com/weekendmarketsummary.htm

- No real change in the news, but 'The Rally, Part 2' continues.
- Still just a relief move for now, but it is likely to carry through to year end.

After a sharp drop, holiday rally resumed with a Santa Claus run this week.

There was more of the same on the news front, i.e. the good, the bad, and the ugly. The good: RIMM seconding ORCL's earnings; strong spending numbers (+1.1%, a 3.5 year high in growth rate); some M&A activity (PHG buying our play RESP; VIP buying GLDN); Michigan sentiment topping expectations (75.5 versus 74.5 expected); the second Fed auction went off with a lot of bids and the promise of bi-weekly auctions as long as needed. The bad: PCE annual core rose to 2.2% versus the 2.0% expected; Oil spiked to 93.50 (+2.44/bbl) on the new trading contract; MU proved that memory chips are a commodity with its abysmal results. The ugly: CC earnings were much worse than the bad earnings expected and JBL (printed circuit boards) guided lower for 2008, and both gapped sharply lower.

The negatives did not matter. Santa's sleigh is all oiled up and ready to roll, and despite the gloomy prospects the retail sales figures and the reports we are getting from malls and stores shows consumers are spending. More importantly, RIMM gave the market a second B-12 shot after ORCL's earnings, and that was enough to get all stocks off on the right foot.

The morning was a bit choppy, but it was choppy in a narrow range and holding the gains all along. Then the afternoon kicked higher and it was a race to the top. There was a last hour attempt to sell as more positions were shuffled ahead of expiration, but that dip was bought, driving the indices to close at their session highs. The move capped off a recovery from a week of tough selling touched off by the FOMC's rather timid initial response and two-step approach that stomped all over many traders' toes. Leaders were rattled to start the week, but they came on strong to finish. You always have to like a good closer.

Technically the action was excellent, but expiration and year end tape painting had their fingerprints all over the session.

The market showed high to higher action, i.e. gapping higher, holding the gains, then sprinting home. It even fought off some last hour selling to show it was more than just a bounce without a brain.

Internals: The internals were as strong as the day. Nice 3:1 breadth on NYSE and 2.3:1 on NASDAQ, showing it was not just a large cap tech day, though they had their way with the session as well. Volume exploded above average as a lot of positions were rolled out and closed out as December came to an end given the up and down action. It appeared that traders waited to see if the bounce would die of natural causes, but when it showed it was all perky again they had to act. Volume explosion.

Charts: After playing patty cake with the 200 day SMA all week the blue chips ripped through that level. SP500 continues its advance, but it is still playing catch-up as all its work only got it up to its 200 day SMA. NASDAQ already put that level to bed, gapped over its 50 day EMA, and rallied to close at its 50 day SMA. It is once more eying that July high at 2736 that stopped it short on the second leg of the holiday rally. Great moves, but all of this shows there is still a lot of work ahead as the indices collide with old resistance points. Even with the moves this week the indices are still below their peaks from the last rally leg.

Leadership: As discussed earlier in the week, leadership took a blow on Monday, but that turned out to be the end of the selling. Just as it looked as if the leaders were going to get dragged down into the abyss the selling ended. By the end of the week the same old names that led all of the rallies in the last half of 2007 were leading once more: large cap tech, agriculture, energy, metals, machinery - - all stocks with ties to strong global action . . . AND all stocks that will look really great on the year end reports to investors. The big boys were picking up these shares to spruce up the portfolios; of course they won't tell their investors WHEN they shares were purchased.

Still just a relief rally but likely to carry on through close to year end.

As noted in the 'charts' discussion, this still has the attributes of a relief move from the harsh selling. The Fed is in the game, but it has not been a game changer just yet. It is hard to fight the Fed, but as seen in 2000 and beyond, if the Fed waits too long or is not strong enough in its response it can take a long time to come back around, i.e. after the economy, an of course the market, decline. This is particularly true of financial crunches as we have now.

That said the leaders are hitting stride on some strong volume as portfolios are populated with the strongest of 2007. Shorts are getting squeezed, not in a sudden rush that is prone to failure, but a steady rise all week. That gets them very uncomfortable, and they tend to rush in and cover. While the indices are rapidly approaching levels that stalled them out on the last leg higher, this kind of momentum can ride through light volume periods such as that short week sandwiched between Christmas and year end. Thus we are looking for the move to continue next week.

As noted Thursday night, however, if this does continue on up to the year end we are going to be banking quite a bit of gain and preparing for a pretty unknown January. There are indications that some areas, e.g. China, are ready to move up after correcting nicely. Overall, however, the charts and their character have not changed yet, and frankly SP500 with its financial weighting still looks technically weak. If the financials are not bottoming then the overall market likely still has more work to do. The world is not going to fall overnight and thus we can stay with the strong global leaders as long as they keep moving higher. In the bigger picture, however, we need to be nimble heading into the new year and see what the big money does after it finishes painting the tape. Those recovering leaders of this week and likely next week may get the ax from some big institutions.

THE MARKET

MARKET SENTIMENT

VIX: 18.47; -2.11
VXN: 20.9; -2.25
VXO: 19.63; -2.79 Put/Call Ratio (CBOE): 0.57; -0.11. Lowest this has been in many, many months.

Bulls: 56.50%. Jumping again, up from 53.3% last week and 49.4% the week before. Didn't make it below 45% (it hit 40.6% on the low for the prior round of selling). It spent 5 weeks above the threshold 55% on the last spike higher. You have to go through the process of wringing out the bulls with a decline of significance, a.k.a. a move into the lower 40's. The theory is that when too many investors or advisors are bullish then most of the money is in the market and there is nothing ready to come in off the sidelines to drive prices higher. On a steady climb from a low of 40.6%, the low for this round. Never made the thirties. Hit 56.7% in June and now it has blown past that. The market peaked about a month later. For reference it bottomed in the summer 2006 near 36%, and 35% is considered bullish.

Bears: 22.4%. Falling like a stone from 25.6% last week and 27.6% the week before. Down from 29.0% after one week at a higher level, jumping from 26.6% the week prior. Up from 22.2% after bouncing up and down over 20 for several weeks. It is still significantly above the threshold 20% considered bearish. Fell to a low of 19.6% on this round. Bearishness peaked at 37.4% on this move and it fell to 18% in August. It topped the June 2006 peak (36%) on this run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005).

NASDAQ

Stats: +51.13 points (+1.94%) to close at 2691.99
Volume: 2.683B (+33.92%)

Up Volume: 1.955B (+480.924M)
Down Volume: 315.852M (-161.821M)

A/D and Hi/Lo: Advancers led 2.29 to 1
Previous Session: Advancers led 1.62 to 1

New Highs: 135 (+62)
New Lows: 185 (-78)

NASDAQ CHART: Click to view the chart

NASDAQ 100 CHART: Click to view the chart

SOX CHART: Click to view the chart

SP500/NYSE

Stats: +24.34 points (+1.67%) to close at 1484.46
NYSE Volume: 2.142B (+55.85%)

Up Volume: 2.008B (+1.242B)
Down Volume: 536.036M (-54.129M)

A/D and Hi/Lo: Advancers led 2.98 to 1
Previous Session: Advancers led 1.25 to 1

New Highs: 100 (+53)
New Lows: 207 (-118)

SP500 CHART: Click to view the chart

SP600 CHART: Click to view the chart

DJ30

Stats: +205.01 points (+1.55%) to close at 13450.65
Volume: 430M shares Friday on expiration versus the 204M shares Thursday.

DJ30 CHART: Click to view the chart

Support and Resistance

NASDAQ: Closed at 2691.99
Resistance:
The March up trendline at 2714
2725 is the July high
2755 is the November/December/February up trendline
2778 from a July 1999 peak
2834 is the October interim peak
2861.51 is the October peak

Support:
The 50 day EMA at 2665
2634.60 is the June peak
The 200 day SMA at 2604
2550 to 2540 from May/June consolidation and the November lows, and that level held on the Tuesday low
2525 is the February closing high
2525 is the August 2004/April 2005/October 2005/March 2007 up trendline
2451 is the August closing low
2386 is the August intraday low

S&P 500: Closed at 1484.46
Resistance:
The 200 day SMA at 1488
1490.72 is the early June closing low and early August peak.
1530 to 1535 are the June twin peaks
1534 is the early July high
1539 is the mid-June intraday high
1541 is the early June high
1556 is the July 2006/March 2007 up trendline

Support:
The 50 day EMA at 1481
1475 from peaks in December 1999 and January 2000
1459 is the February peak
1449 is the June/July 2006 up trendline
1440 - 1437 from January and March peaks
1438 is the November low
1430 from the August interim lows
1425 is some minor support.
1406 is the August closing low
1375 is the March closing low
1370 is the August intraday low

Dow: Closed at 13,450.65
Resistance:
The 90 day SMA at 13,486
13,670 is the July 2006/March 2007 up trendline
The early July peak at 13,671
The early June high at 13,676 (closing), 13,692 (intraday)
The mid-June high at 13,689
The August high at 13,696
13,750 is where it stalled in early December
13,930 is the late October peak
The July high at 14,022
14,088 is the early October closing high
14,198 is the October intraday high.

Support:
The 50 day EMA at 13,400
The 200 day SMA at 13,325
Some support in the 13,050 to 13,000 range
12,845 is the August closing low
12,786 is the February peak
12,743 is the November low
12,518 is the August low
12,250 from late March lows
12,050 from the March 2007 low

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

December 27
- Durable goods orders, November (8:30): 2.5% expected, -0.2% prior.
- Initial jobless claims (8:30): 340K expected, 346K prior
- Crude oil inventories (10:30): -7.5M prior

December 28
- Chicago PMI, December (9:45): 52.0 expected, 52.9 prior. Will it slip back below 50 again?
- New home sales, November (10:00): 720K expected, 728K prior