DOW AND NY COMPOSITE EXCEED NOVEMBER HIGHS -- FINANCE SECTOR LEADS MARKET IN DECEMBER -- SEMIS AND RETAILERS LEAD LATE SELL OFF -- DOLLAR FALLS SHARPLY AS MACD-HISTOGRAM TURNS NEGATIVE -- EURO SURGES OFF KEY RETRACEMENT

DOW AND NY COMPOSITE EXCEED NOVEMBER HIGHS... Link for todays video. Slowly, but surely, the major indices are moving above their November highs. Small-caps started as the Russell 2000 broke its early November high on December 1st. The Nasdaq followed suit with a breakout last week. Today, the Dow Industrials and the NY Composite joined the club with moves above their November high. Chart 1 shows the Dow moving above 11450 for the first time since September 2008. The Dow may be overbought after a 6% advance this month and the November high might mark resistance, but the senior average shows no signs of real weakness. Last weeks lows mark the first support level just above 11300. While a move below these lows would be short-term negative, it would take a break below the November lows to actually reverse the long-term uptrend. Chart 2 shows the NY Composite moving above its November high with a steady advance the last three days. Short-term support is set at 7700 and major support is set around 7400.

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Chart 1

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Chart 2

FINANCE SECTOR LEADS MARKET IN DECEMBER... Excluding Monday, there have only been eight full trading days in December. However the Finance SPDR (XLF) has made the most with a 6+ percent gain. XLF is up more than twice its nearest competitor, which is the materials sector (+3.04%). Seven of the nine sectors are up for the month. The utilities sector shows 0% (no gain/loss), but will likely show a gain after todays advance is factored into the PerfChart. Never mind utilities, this is all about the renaissance in finance. While the ETF may be getting short-term overbought, it shows no signs of weakness. In fact, relative strength in the finance sector is a big reason for the new 52-week highs in the NY Composite and Dow today.

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Chart 3

SEMIS AND RETAILERS LEAD LATE SELL OFF... The broad market indices moved higher in early trading on Monday, but retailers and semiconductors were noticeable laggards. These two groups were also among the hardest hit with selling pressure in the final hour. Chart 4 shows the Retail SPDR (XRT) hitting resistance around 48 this month. The ETF failed to hold a surge above 49 and then formed a bearish engulfing pattern on Monday. A move below 47 would break trendline support and confirm this bearish engulfing pattern. A short-term reversal from current levels could give way to a correction. Broken resistance turns into support around 44.

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Chart 4

Chart 5 shows the Semiconductor HOLDRS (SMH) moving lower the last two days and showing short-term relative weakness. Like XRT above, the ETF is up significantly since early September and ripe for a correction or a consolidation. The trendline extending up from late August marks the first support level to watch. A break below this trendline would be negative with the November pennant marking the next support area in the 30-31 area.

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Chart 5

DOLLAR FALLS SHARPLY AS MACD-HISTOGRAM TURNS NEGATIVE... The Dollar was hit with a double whammy on Monday. First, the Chinese central bank decided not to raise interest rates and this pushed money into riskier assets. Second, the Senate is set to vote on legislation that would increase spending and decrease revenues. While this will likely stimulate the economy, it also increases the national debt and weighs on the greenback. Chart 6 shows the US Dollar Fund (UUP) moving sharply lower with a break below 23 on Monday. I voiced concerned last Wednesday that the currency vigilantes might turn their attention from the Euro to the Dollar. Both currencies have their issues, it is just a question of which one gets the most negative attention (selling pressure). There is still potential support around 22.7 from broken resistance, but the MACD-Histogram turned negative and dipped to its lowest reading since early October. MACD-Histogram measures the distance between MACD and its signal line. This tells us that MACD moved below its signal line and short-term momentum favors the bears. A move back into positive territory is needed to put momentum back on bullish footing. On the price chart, a move above 23.2 is needed to forge a breakout.

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Chart 6

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Chart 7

Chart 7 shows weekly candlesticks for some perspective. UUP forged a bullish breakout with the November surge, which means this could still be just a pullback after the breakout. Momentum could hold the key. The indicator window shows the MACD-Histogram (5,35,5). There were five swings over the last two years with the MACD-Histogram doing a pretty good job defining these swings. The indicator is currently bullish and a move into negative territory would turn long-term momentum bearish. My guess is that the 22.7 area is the make-or-break zone.

EURO SURGES OFF KEY RETRACEMENT... A discussion on the US Dollar Fund or US Dollar Index would be incomplete without something on the Euro, which accounts for over 50% of these two. Chart 8 shows the Euro Currency Trust (FXE) firming at the 62% retracement and surging above 133 today. Also notice that MACD moved above its signal line over the last two days. This move establishes support at 131 (last weeks low). Broken support around 136-137 marks the next resistance zone.

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Chart 8

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Chart 9

Chart 9 shows weekly candlesticks with StochRSI in the indicator window. In prior analysis, I considered the trendline break and ABC pattern as long-term bearish. Also notice that StochRSI moved below .20 for a bearish signal that would not be reversed unless the indicator moves back above .80. Todays big bounce is cause for a second look, but I do not think it is enough to negate the prior bearish signal. Follow through above 135 would call for further re-evaluation.