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I also continue to like the overseas markets in 2013, as there were signs last fall that they were starting to lead the US markets.

The weekly chart of the Shanghai Composite shows that it broke through its downtrend (line a) in early December. The economic news has been improving over the past few months, consistent with a turnaround in its economy.

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The on-balance volume (OBV) has also turned positive, as it formed a bullish divergence (line e) at the recent lows and then moved through its downtrend (line d). The divergence was a sign that as the Composite moved lower there were fewer sellers. The longer-term downtrend (line a) is now at 2,550, which is over 10% above current levels.

Two China ETFs were recommended last November, and last Friday I discussed two other country ETFs that I think will benefit from China's turnaround.

Last week's data on new home construction reflected the highest rate of construction since mid-2008. Retail sales were also better than expected, suggesting the consumer was willing to spend more than most thought in December. This optimism was dampened a bit last Friday, when the preliminary reading on Consumer Sentiment declined slightly after December's big drop.

The Empire State Manufacturing and the Philadelphia Fed Survey both reflected softness in the manufacturing sector, which is still a concern. On the other hand, the number of unemployment claims dropped to their lowest level since early 2008. The stock market responded strongly to this report.

In the week ahead, this Tuesday we get existing home sales, as the markets will be closed Monday for the Martin Luther King holiday. Then on Thursday, we get the weekly jobless claims, followed on Friday by new home sales.

What to Watch
For the past two weeks, the majority of the major averages have made little upside progress, though the market internals and some stocks have done much better.

The bias is clearly to the upside, even though much of Wall Street ponders the impact of the debt ceiling and voices their concerns over the stock market. Comments from House Republicans late last week suggests they may not force a showdown right now over the debt ceiling

The continued slide in Apple (AAPL) stock has not helped, as its break of the $500 level stopped us out and increased the already high level of negative sentiment. While the tech sector still tries to find a bottom, quite a few sectors continue to make new highs.

The market seems quite resilient as once again last Friday's early losses were met by buying as the market closed higher. I still think the S&P 500 is likely to challenge the 1,500 to 1,520 area over the next few weeks. Before a short-term top is complete, we would normally expect to see one sharp pullback and then a rally above the prior highs.

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You may find a surprise or two in this performance chart of four key markets since the stock market low in March 2009. The Spyder Trust (SPY) and the iShares MSCI Emerging Markets Index (EEM) are about even, gaining 114% and 111% respectively. In April 2011, EEM was up 138% before it dropped sharply. The percentage chart for gold still shows an uptrend, but some are likely disappointed by the 77% gain.

The action was mixed in the sentiment numbers last week. While individual investors became a little less bullish, the financial newsletter writers moved up slightly, to 53.2% bullish with just 22.3% bearish. These numbers are still not at danger levels, but are getting closer.

NEXT: Stocks and Tom's Outlook