SUMMARY:
- Rather boring session is still constructive for more upside . . . if Europe comes through.
- Once again Europe gets things going upside, S&P tries to stall it, then more European news helps boost stocks again.
- Earnings outlooks continue to come in mixed as MMM meets, DRI misses.
- Christmas tree sales up but first week of December sees sales drop 2.6%.
- Leaders already moving laterally and consolidating the prior move while the indices are starting to do the same.

Not exciting but setting up for the possibility of good news out of Europe later in the week. 

I am going to dazzle you with some statistics today. I will thrill you with stories about European central banks, monetary funds, and bailout funds. I will also talk about stock movement. Okay, I am trying to embellish the session a bit. There was not much excitement at all. It was a day like we anticipated, and that is another move of no account following that strong rally last week. When I say of no account, I mean that the market is a bit tired.

The picture of the market daily action tells the story. The SP500 tapped the 200 day EMA again and stalled. This is similar to the action it has shown the last four sessions, albeit on Monday there was a good break to the upside. But still it is bumping resistance, basically moving laterally after that strong move to the upside. As I discussed last night, that is pretty much what we expected, particularly since we are seeing good stocks moving laterally as well, consolidating that move and getting ready, I think, to move higher again. Later in the week our friend the Secretary of the Treasury, little Timmy Giethner, is going to Europe. He will tell them what worked here in the U.S. That is just to print a lot of money. Make all that liquidity available and, by golly, financial instruments and financial institutions will rise in value. That will help pull them out of debt issues.

Really there is a problem in Europe. Even if they adopt the austerity issues or in some part BECAUSE they adopt the austerity issues they will not have any robust economies to grow their way out of the problems. When you have this kind of debt and you examine what your country’s economic output is, you figure you will have to grow as you have never grown before in order to get out of it. There has to be some appreciation in financial assets (I guess that is better than seeing them depreciate). So there goes Geithner on the heels of the S&P placing all those countries on negative watch. I guess he has a big stick to carry with him while he says, “Do it our way or it could be ugly.” Of course it could still be ugly for us here in the U.S. We have 2012 to deal with.

As the famed investor Jim Rogers said today, we could have a real problem in 2013. I think that problem started with a D… oh yeah, depression. He is not just talking about everyone being depressed. He is talking about the economy. We will have to see what happens at that point. I do not think there is anything good necessarily coming around the coroner, but I had not thought of depression. I guess that is a likely scenario given what could happen. But more of that later when we have other things to worry about. Right now we are looking at a market that is trying to consolidate laterally, hold the gains, and make a new break to the upside in anticipation of all that good old European liquidity.

Looking at the intraday action, stocks started higher. There was such good hope out of Europe. German factory orders were up. There was a thought that Europeans have their act together this time for sure, so why not start stocks to the upside? They had the same problem they had on Monday. It bounced up to the same level and stalled. Indeed, they spent the entire morning bouncing back and forth.

In the afternoon session there was another breaking story. The FT announced that it could be that both the ESM and the EFSF could be used simultaneously to help bail out the European countries. Wow. Who would have ever thought of that? That bounced the market higher, and all of the indices were trading positive. It looked good, but then everyone looked around and thought, so what? Where is the money going to come from, anyway? Same old problem. Will the U.S. ultimately have to bail out Europe financially as opposed to militarily this time? Those are two hard thoughts to swallow, and the indices folded back down around the flat line.

SP500, +0.11%; NASDAQ, -0.23%; Dow, +0.43%; SP600, -0.12%; SOX, -0.19%.

A lot of nowhere on the session. As noted earlier, that is not necessarily a bad thing if you are looking for the indices to consolidate that solid move to the upside.

WEDNESDAY

Whether or not the bid comes back is quite important because we are still looking at upside. We have been taking upside positions from stocks that show that they want to make the move or at least they really look like they are starting to make the move. We pick up a few positions because we want to have some representation if everything turns out well in Europe and the market wants to rally yet again on another European deal. This time I think it is a bit different. There are different players involved and different circumstances. Again, when they can talk about austerity without having to don riot gear, that is a good indication that they are addressing the problems in a more orderly and rational manner.

On Wednesday we have the Mortgage Index, Crude Inventories, and Consumer Credit as far as the actual economic reports. That will not move anything. The news out of Europe and the hopes of what may happen will drive things to the upside. We have seen stocks moving laterally, and I think the indices may continue to do that. In anticipation of a continued upside move, we will pick up upside positions here and there when they present themselves. We have to make sure that we do not get stocks that are too extended or have too much resistance at hand. We do not want to get them thrown right back in our face. That can always happen, but you just want to have a logical stop point so you are not just throwing money away. Then you can have some protection as you buy into these positions and have better odds of them working out for you.

Right now we have some downside. Some of those plays were starting to work today. We will continue to work for downside and upside because the market is peeling off in two different ways. Many stocks are having trouble. WYNN is heading to the downside. HAL is heading lower as well. It is having its own kind of problems. There are several stocks in position to turn back over. ANF in the retail sector is struggling. Even in the tech sector there are issues. INFY may be trying to turn over. We will have to see what happens. A lot of the stocks are still in position to move higher with the bid. If they get that bid, we are ready to step in with them. We could very well get a year-end run. While some would call it the Santa Claus rally, it would almost have to be a European/ECB rally. Maybe a Merkel rally if she agrees to go along with whatever plan is devised. That is where the impetus is coming from.

We will see what tomorrow brings and what it turns up for new buys. I think it might give a lateral move again, so we will not get too itchy on the trigger finger. Just be patient and let stocks set up. Let them come back to us. Let them hold support and show the move, and then we can make our move.

Jon Johnson
Stock Splits & IH Alerts, Editor
InvestmentHouse.com