Holiday Spirit Relieves QE Fatigue

NEW YORK (TheStreet) -- A week ago market sentiment turned on a dime when congressional leaders announced that they were optimistic of finding a compromise solution that prevents the economy from falling off the fiscal cliff. I for one was quick to recognize the changed environment for U.S. equities even though I remain bearish longer term.

Some key levels were penetrated to the upside on Monday setting the stage for the Thanksgiving week rally, which is building a base for a potential Santa Claus rally even with continued negative weekly chart profiles for the major equity averages. Some of the weekly chart profiles could shift to neutral as Santa and his sleigh prepare to leave the North Pole a month from now.

On Monday, I wrote, Stocks Set to Bungee from Fiscal Cliff where I described the potential key reversal for the Russell 2000, which was confirmed at Wednesday's close. I also tracked the upward trend for the S&P 500 above my annual pivot at 1363.2.

On Tuesday, I wrote, Since QE3, Treasuries Outperformed Stocks and Commodities and explained that it could be time to shift from a "risk off" investment strategy to a "risk on" "buy and trade." I showed how U.S. Treasuries should be a component of a long-term investment Strategy if you do not intend to "buy and hold."

On Wednesday, I wrote, Santa Claus Rally Eyed for Online Leaders Apple, Amazon and Google explaining why these stocks have the ability to lead a Santa Claus rally. Investors following my "buy and trade" strategies could have captured gains in these leading MOJO stocks.

Analysis and Key Levels for the U.S. Capital Markets

Yield on the 10-Year Treasury Note (1.685%): The weekly chart is on the cusp of favoring either a "risk off" long or a "risk on" buy as the yield rests on top of its five-week modified moving average at 1.671%. The most likely trade is between my semiannual value level at 1.853% and my monthly risky level at 1.452%.

Comex Gold ($1729.0): The weekly chart shows gold above its five-week MMA at $1718.7 with declining momentum. This favors a trading range between my semiannual pivot at $1702.5 and quarterly risky levels at $1844.9 and $1881.4. My semiannual, monthly and annual value levels are $1643.3, $1639.8 and $1575.8.

Nymex Crude Oil ($87.63): The weekly chart for crude oil stays negative on a close Friday below the five-week MMA at $88.58. The 200-week simple moving average is a major support at $83.32 with my monthly value level at $76.96, and my annual and quarterly risky levels are $103.58 and $107.31.

Euro vs. the Dollar (1.2822): The weekly chart shifts to neutral from negative on a close Friday above the five-week MMA at 1.2812. My monthly value level lags at 1.2289 with semiannual and quarterly risky levels at 1.2917 and 1.3048.

Dow Industrial Average (12,837): The weekly chart stays negative with a weekly close below the five-week modified moving average at 13,058. My annual value level is 12,312 with my monthly risky level at 13,143.

S&P 500 (1391.0): The weekly chart stays negative with a weekly close below the five-week MMA at 1405.4. My annual pivot is 1363.2 with my monthly risky level at 1418.7. SPX is the only major average above its 200-day simple moving average at 1382.9. A key to near term strength is a weekly close above the annual pivot at 1363.2.

Nasdaq (2927): The weekly chart stays negative with a weekly close below the five-week MMA at 2982. My annual value level is 2698 with my monthly risky level at 3028.

Dow Transportation Average (4997): The weekly chart stays negative with a weekly close below the five-week MMA at 5022. My semiannual value levels are 4449 and 4129 with my monthly risky level at 5053. As an economic warning Transports have been moving sideways to down since mid-March and a daily close below the June 4 closing low at 4847.73 generates a Dow Theory sell signal.

Russell 2000 (798.35): The weekly chart stays negative with a weekly close below the five-week MMA at 809.68. My semiannual value level is 686.25 with my monthly and annual risky levels at 807.15 and 836.16. The small cap index closed higher each day this week confirming last Friday's key reversal on the daily chart.

This week's rally for the major equity averages is building a base for a Santa Claus rally given weekly closes above 1363.2 on the S&P 500. This process will gather upward momentum given weekly closes above the five-week modified moving averages, which will most likely not happen today.

After next Friday's closes, my monthly risky levels end and when December trading begins, I project lower monthly pivots, which could provide levels at which to launch the Santa Claus rally.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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