HOPES FOR SANTA CLAUS RALLY FADE -- MIDEAST VIOLENCE WEAKENS DOLLAR AND BOOSTS GOLD AND OIL -- CHEMICALS TAKE BIGGEST HIT -- 13 AND 34 DAY EMAS ARE STILL NEGATIVE -- HOURLY BARS SHOW THREE-WEEK TRADING RANGE STILL INTACT

CHEMICALS FALL HARD ... Dow Chemical and Rohm and Haas fell especially hard today on news that funding for their merger was in trouble. The two chemical stocks lost -20% and -15% respectively. Chemicals as a group lost 5% and were the day's biggest losers. Charts 1 and 2 show both stocks falling sharply on very heavy volume. That contributed to the day's negative mood in the stock market. So did a flare up in Mideast violence which boosted gold and energy prices. Energy and gold stocks stocks were the day's only winners. The US Dollar opened weak but gained ground as the day wore on. That kept commodity gains in check.

Chart 1

Chart 2

DOLLAR RECOVERS FROM EARLY LOSS... After opening the day lower, the U.S. Dollar got some traction as the day wore on. The daily bars in Chart 3 show the PowerShares US Dollar Bullish Fund (UUP) inching into positive territory by day's end. The UUP is also finding some support near its 200-day moving average. The opposite is true for Euro which has been rallying of late. Chart 4 shows the Euro giving up its earlier gains to close lower. The European currency is starting to meet some resistance near its 200-day moving average. The late bounce in the dollar took some steam out of the morning bounce in gold and oil.

Chart 3

Chart 4

GOLD TESTS RESISTANCE LINE ... Chart 5 shows the streetTracks Gold Trust (GLD) testing an important resistance line drawn over its July/September highs. Gold stocks continue to show good relative strength as well. Chart 6 shows the Market Vectors Gold Miners ETF (GDX) trading near a three-month high today. Its relative strength ratio has been rising since late October. The GDX, however, is still below resistance at its mid-September peak and its 200-day moving average. A number of individual gold stocks, however, are trading over their 200-day lines including Barrick, Harmony, Iamgoldcorp, Eldorado, Kinross, Randgold, and Royal Gold (which has reached a new 52-week high). Chart 7 shows Newmont Mining trying to clear its 200-day average.

Chart 5

Chart 6

Chart 7

DAILY EMAS ARE STILL NEGATIVE ... In case you're wondering, the daily 13-34 day exponential moving average (EMA) combination is still negative (and has been that way since the end of May). Chart 7 shows the two EMA lines since July. The black line along the bottom of the chart plots the difference between the two lines. [You can construct that line by using 13,34,1 values on the MACD indicator]. In order to generate a buy signal, the black line has to cross above the zero line [which would coincide with the 13-day EMA (blue line) crossing over the 34-day EMA (red line)]. The August rally attempt failed at the zero line. Although moving average lines aren't perfect, they do provide a relatively simple way to keep us on the right side of market trends. The 13-34 day EMA combination has proven itself to be especially reliable in the past in spotting "short-term" trend changes. Weekly and monthly EMA lines remain negative as well.

Chart 8

HOURLY BARS ... I've shown an hourly bar chart of the S&P 500 several times over the last couple of weeks. Today, I'm showing hourly bar charts for the Dow and the Nasdaq Composite. The pictures are pretty similar. Both indexes are still stuck in a three-week trading range (as is the S&P 500). The two key support levels to watch on the charts below are 8348 for the Dow (Chart 9) and 1478 for the Nasdaq (Chart 10). Prices have to say above those levels to keep the sideways trading range intact. The same support level for the S&P 500 (not shown) is 851.

Chart 9

Chart 10