Hello folks I hope all of you are having a really good Holiday season with your family and friends. Please enjoy this week’s trading update. My voice is still not strong enough to carry a video update, but I am most hopeful it will be in a few more weeks….

Well, this holiday-shortened week included further evidence (for most bulls anyway) the U.S. economy is gaining traction and getting itself well poised as we approach 2011….data released this week showed increased consumer spending in November and companies stepping up orders for equipment. In addition, GDP estimates are being revised upward and corporate profits are up sharply giving U.S. stocks the ability to log their second year of impressive gains.

I was watching the VIX this past week and it’s been the lowest since the financial crisis even begun. This past Wednesday the VIX closed at 15.45 which was its lowest close since July 2007 but finished the week at a still comfortably low 16.47. With a VIX this low it could be indicating complacency in the markets; -meaning too many people are bullish and getting too comfortable with the ever upward stock moves…and keep in mind the people in the markets tend to move in herds and that herd moves usually tend to be wrong.

So, the price action this past week against a backdrop of mostly stellar corporate profits and positive economic reports helped extend a climb that now has the Dow up about 11% for 2010, the S&P 500 up nearly 13% and the Nasdaq rising almost 18% for the year.

Looking at the daily chart of the S&P E-Mini Futures below you can see I have put another upside resistance to the price action at 1308….this price was last seen in August 2008 before the market cratered and will serve as strong upside resistance….you can see we still have strong bearish divergence and the W5 up as a strong hint at a coming market pullback….the 50 EMA is sitting right at 1203 which could serve as support should the markets pull back…currently I am not long the markets, nor short, I am waiting for a good pullback to pick up more long positions.

Looking at the Russell 2000 chart below you can see a slightly different picture….in this chart we are on a W3 up, not a W5 which indicates we may have a pullback but not a change in trend….a W5 leg up indicates a change in overall trend is coming…so, to me this is telling me a lot of money is probably coming out of the larger cap stocks like Amazon, Net Flix, Price Line and others and going into small cap stocks…also, looking at this chart below I have shown you there is no bearish divergence which means this recent up move is validated by underlying strength…this is why you may be seeing tired action in those other charts while this chart indicates aggressive bullish action.  But if the markets all pull back this price action will also pull back and a very strong support zone is a combination of the 50 EMA and the 25% Fib levels, or around 740….this would be a normal and healthy pull back where you could then dip in and pick up more long positions.

These last two weeks of the year are always hard to trade since it does not take much to spike volatility and with the trading volumes even lower than the Friday after Thanksgiving gives you an idea of soft the markets are…in quiet markets like this very little movement is expected to the downside but should it occur it will be quick…as I mentioned earlier, I took the remainder of my longs off this table this past week happy that we hit our upside measuring objective and for those that followed along good for you as well….

Enjoy the remainder of the year and have a Happy and safe New Years…

Trade Smart — Not Often

hpb