In This Edition...

• Stocks Caught Between a Rock and a Hard Place 
• Coming On Strong - Hot Small Cap Sectors & Industries 
• China Energy Gets Mainstream-Media Attention (sidebar to the right)

Stocks Caught Between a Rock and a Hard Place

A lot of investors were hoping this past week would be the beginning of something better for the market. After all, we ended November bullishly, and had made higher highs and higher lows - pretty consistently - since then. Though the bulls have yet to do anything overly-impressive, we're still on the verge of, well... on the verge of something. 

On Tuesday of last week we mentioned the S&P 500 had finally managed to intercept its 50 day moving average line for the first time in weeks. We interpreted it as a hint that stocks were at least attempting to improve - their best shot in a long time. However, the market was back-pedaling the rest of the week. So much for the potential rebound.

Though only three days have passed in the meantime, the chart we showed you then (of the market as well as the VIX) has come a long way, though not necessarily for the better.

Tuesday was the only day we saw the S&P 500 close above the 50 day moving average line (purple); it made three lower closes on Wednesday, Thursday, and Friday. The upside of that pullback is that the S&P 500 did manage to find support at the 20 day moving average line (not shown on our chart) as well as at a short-term support line that's only come into play the last four weeks (blue).

In other words, the market's caught between a rock and a hard place.

In the meantime something else has become clear...there's resistance at 918 (dashed); that's above the 50 day average line, and getting above that level would also mean the highest highs since mid-November. More importantly though, it would likely represent enough bullish momentum for a decent move higher - the kind worth worrying about.

So, a move above 918 could be a verygood thing. That's not to say that failing to move above 918 right away would be a bad thing though. As long as that support line - or the 20 day line - continues to hold up as support, the bulls can remain optimistic.

And what about the VIX? Once its short-term support line was breached on Tuesday, it did indeed tumble...all the way to the next support level. Friday's low of 41.29 was a multi-week low, slightly under November's low of 44.25. However, we have to wonder if the result will be the same. It seems like each time the VIX hits that lower Bollinger band it just pops back up again. To see it happen now at the same time the S&P 500 hit resistance at its 50 day line isn't exactly encouraging for the bulls. 

Nevertheless, there's not enough evidence here to convict the market of bearishness or bullishness. We'll have to wait and see how this chart unfolds. No matter what though, we expect some movement - one way or another - in the near future.

The wrench in the works is the coming week, which is shortened by a holiday on Thursday, and a half-day on Wednesday. The entire week is pretty light in terms of volume too, so we're not likely to see fireworks. That's not a bad thing necessarily, as there may still be some minor movement. Indeed, many investors find the quiet periods are a good chance to get in and out of stocks. It's just not going to be a big-move kind of week.

We know we're micro-analyzing the charts right now, but we're doing so because of the potential bigger-picture implications come early next year (or even the week after next). 
 

Coming on Strong

We vowed to keep a close eye on sector and industry trends, and we're going to live up to our promise. 

Why the emphasis on sectors? Because it's half the battle - a strong sector can lift even the weakest of stocks, and a weak sector can beat up even the best of stocks. Think of it like this... would you rather have the wind at your back, or in your face?

Anyway, while there wasn't a lot of bullishness from any sectors or industries in October or November, December - and its potential rebound - are offering up some reasonably compelling ideas.

We'll restrict our 'of interest list' to just the small cap world, though you may find their large-cap counterparts are giving the same hints. 

We'll also let you know that it's not just a matter of performance that gets a group on our emerging-leader list. There's a robust list of criteria met to make it this far... technical, fundamental, sentiment, and others. Of course, recent performance (momentum) is still a pretty big deal - a falling stock of a great company is still a falling stock, which makes for a lousy investment. It's much more palatable to buy into something on its way up.

We can't dive into all the details we'd like to within this newsletter - there's just not enough time or space. The nearby table will at least get us started though. Take a look at it. As we have time over the next couple of weeks, we'll add some details about each group via the blog. 

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