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With the last FOMC meeting of the year out of the way, focus shifts back to the countdown to the fiscal cliff. MoneyShow's Tom Aspray shares what the charts say about the short-term outlook for the markets as we head into the last few trading days of the year.

The S&P 500 made new rebound highs in the middle of the afternoon, but then the sellers took over as the press conference by Fed Chairman Ben Bernanke made traders more nervous. The upside breakout early in the week likely stopped out the majority of those who remained on the short side of the market.

The stock index futures were weak early Thursday, but are now flat. After a 7.3% gain in the futures from the November lows to yesterday’s highs, the markets are overdue for a rest. The selling could be exacerbated by the realization that our leaders in Washington are even more stubborn/incompetent that we previously imagined

Now that the FOMC meeting is behind us, we still have the Euro Council meeting that ends on Friday. After the June meeting, there was an uptick in volatility and if the Eurozone ministers start fighting, it could pressure stocks over the near term. The strength of the consumer is a growing concern after last week’s drop in consumer sentiment, so many will be closely watching today’s Retail Sales report.

As discussed below there has been further improvement in many of the technical studies so a short-term pullback should be a buying opportunity in some of the strong sectors, as well as the stocks in those sectors.

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Chart Analysis. The daily chart of the Spyder Trust (SPY) shows that the downtrend from the September-October highs was slightly exceeded yesterday. The daily starc+ band is now at $145.44, which is 1.3% above Wednesday’s close.

  • There is initial support now at $142.40, with the 20-day WMA at $141.55.

  • From Wednesday’s high, the 38.2% Fibonacci retracement support is at $140.79.

  • This would typically be a good entry level using Fibonacci analysis.

  • The NYSE Advance/Decline line has moved above the October highs, line b, which reaffirms the positive intermediate-term outlook.

  • On a correction, the A/D line could pull back to its WMA, but should not drop below the November lows.

  • The McClellan oscillator broke its downtrend, line d, two days after the market lows.

  • The McClellan oscillator has now formed a short-term negative divergence, line c, which is consistent with a short term top.

The December E-Mini S&P 500 futures had a high Wednesday of 1438.75 as the downtrend, line f, was just barely exceeded. The futures closed at 1427.25, down over four points for the day. The futures are flat a couple of hours before the opening.

  • There is next support in the 1420 area and then at 1415, with the rising 20-day EMA at 1410.

  • The 38.2% Fibonacci retracement support from Wednesday’s high is at 1401, which is above the key swing low at 1396.75.

  • The 50% support is at 1389.25 but the futures should not drop that low.

  • The daily OBV has improved in the past week after breaking its downtrend, line g.

  • Once above Wednesday’s highs, the next major resistance is at 1459 and 1466, which corresponds to the twin October highs.

NEXT PAGE: Minor Correction or Serious Decline?

Tickers Mentioned: Tickers: SPY, QQQ, IWM, AAPL