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The final two weeks of the year could be very choppy, as we get closer to the fiscal cliff and portfolio managers do their year-end portfolio window dressing. This is when managers buy the year's best performers and sell the worst so their portfolios look better at year-end.

In addition to the FOMC meeting, there was also a Eurozone summit, wherein leaders agreed to move toward the formation of a banking union within the Eurozone. While this was an encouraging step, they put off until next year any decision to further integrate their economies and fiscal policies. The finance ministers also agreed to release the $57 billion of new funds to Greece.

Last week's economic data was generally positive. Retail sales were up but below estimates due to the sharp drop in gasoline prices. On Friday, the flash PMI Manufacturing Index rose to 54.2, which was well over 50 and indicated growth in business activity.

Industrial Production was also out last Friday, and it rose the most in two years in November. It was much better than most economists had forecast.

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This week, we get the Empire State Manufacturing Survey on Monday, followed by the Housing Market Index on Tuesday. For a technical perspective, this index completed a bottom early in the year when resistance (line a) was overcome, completing a major base on the weekly chart. It continues to look very strong.

On Wednesday, we get the latest reading on housing starts, followed on Thursday by existing home sales. Also on Thursday is the final GDP for the third quarter, as well as the Philadelphia Fed Survey. The week ends with personal income and outlays as well as the final reading for the month on consumer sentiment.

What to Watch
This week, we are publishing early and are only able to use data up through noon. This week, the Dow Industrials, S&P 500, and Russell 2000 made new rally highs, but the Nasdaq-100 did not.

The decline Thursday and early weakness on Friday reaffirms the short-term deterioration that was evident after last Wednesday's close. This was discussed in detail in Thursday's "Another Round of Cliff Selling?" The major ETFs are still above the initial support levels I mentioned in the article, so this week's review will be abbreviated.

If stocks close the week lower, it will increase the downside momentum, but it could be reversed if Washington calms the markets with a fiscal-cliff resolution.

I still think that the current decline will provide an opportunity to buy stocks at stronger support where the risk is better controlled. This is what I referred to recently as smart buying, as it is important to minimize the risk on any one position.

The individual investor has become a bit more positive on stocks. According to AAII, 42.2% are now bullish. The number of bears has also dropped sharply: on November 15, 48% were bearish, but this number has now dropped to 30%. The number of bullish financial newsletter writers also rose 2.1% to reach 45.7% bullish.

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The market internals confirmed the new highs last week, as the daily NYSE Advance/Decline line did move above the October highs. The weekly A./D line has not made new highs and looks ready to close the week flat. It is well above the WMA and the long term uptrend (line c).

A lower close this week will likely cause the A/D line to roll over, suggesting the market will stay in its trading range. The 20-week EMA is at 8,159, which represents first support. It is about 2% below current levels.

Additional support is at 8,074 with the weekly uptrend (line b) now at 7,849, which is very close to the November lows.

NEXT: Stocks and Tom's Outlook