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The economic news last week started off poorly but closed fairly strong. Monday’s Empire State Manufacturing Survey was disappointing, as it continues to indicate contraction.

Tuesday’s Housing Market Index revealed that homebuilders have the best outlook in five years, and while housing starts Wednesday were a bit lower in November, the chart does show a healthy uptrend.

On Thursday, the GDP estimate for the third quarter was revised up to 3.1%, which is the best reading of the year. Existing home sales surged 5.9%, and the Philadelphia Fed Survey was much better than the previous month. The week ended with a slight increase in durable-goods orders, while consumer sentiment continues to drop as concerns over the fiscal cliff mount.

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Even though we have just a half day of trading Monday, followed by the Christmas holiday, there are several notable economic reports. The S&P Case-Shiller Housing Price Index comes out on Wednesday, and new home sales numbers follow on Thursday.

Friday brings the Chicago Purchasing Managers Index and pending home sales. Of course, the main focus toward the end of the week will be on the supposed resumption of the fiscal cliff negotiations.

What to Watch
The strong action of the market internals early last week was dampened somewhat by the sharp market decline Friday. Nevertheless, the major market averages did close the week higher and are still holding well above support, suggesting that the current correction should be a buying opportunity.

According to option expert Larry McMillan, “the equity-only put-call charts continue to remain strongly on buy signals.” This suggests that the bulls can ride out the current storm.

The individual investor continues to get more positive, as 46.4% are now bullish and just 24.8% are bearish. There was little change last week from the financial newsletter writers, as the percentage of bulls rose slightly to 46.8%.

I continue to favor stocks in my four favorite sectors, and a decent pullback in the two industrial stocks I recently recommended should present a good opportunity.

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