Stocks finished the month of January with strong gains. The first three days of February continued the prior month's strength with the market as measured by the Dow Jones Industrial Average challenging and exceeding the first level of resistance at 12,750 - 12,800. The current resistance now stands at 12,900, which isn't far from where trading took place on Friday. The S&P 500 resistance level is at 1350-1360. Friday's sharp advance due to the strong employment report has the S&P 500 moving very close to that level.

The market which had been extended pulled back a bit at the end of the prior week and the early part of last week completing a minor pullback before moving higher. The market after a sharp move higher is extended again and could see another minor pullback this week after reaching the next level of resistance mentioned earlier at 12,900 for the Dow Jones Industrial Average and 1350 -1360 for the S&P 500.

Another week passed and no further progress was made on Greece's financial woes. Greece, the European Union, the European Central Bank and the International Monetary Fund are still trying to reach a solution. The positive action by the U.S. stock market during the past few weeks in spite of a solution not being reached on Greece's woes or on other financially weak European Union members might be indicating that the worst has already been factored in and the view is that the end result might not be as bad as originally feared. The current focus has moved back towards China and Asia in general as to their contributions to global economic growth and their ability to sustain that growth.

Last week, numerous earnings and outlooks were reported from companies as the earnings season progresses. A lot of good reports have come out, but there also has been a lot of misses on either revenue or growth in comparison to consensus expectations. The misses haven't been so numerous that it is worrisome, but they probably are a reflection of the economy in general.

Stocks have successfully moved into areas of resistance and seem destined to break through those areas and move much higher still. As I pointed out last week the one scenario that wasn't being discussed very often was the one where the stock market moves up to levels no one is anticipating. That seems to be what is occurring and could provide a much longer and further advance.

Our short and long term market direction signals are higher. The mid-term market direction signal is neutral.

Stock Market Data:

Market Direction:
Short Term Direction (Days to Weeks) - Higher
Dow Jones Industrial Average - Higher as of 11/29/11. Prior signal was lower on 11/22/11.
Russell 2000 - Higher as of 11/30/11. Prior signal was lower on 10/21/11.
The Short Term direction is measured by the index closing above (higher) or below (lower) the 50 day moving average of the respective index.

Mid-Term Direction (Weeks to Months) - Neutral
Dow Jones Industrial Average - Higher as of 1/3/12. Prior signal was lower on 8/24/11.
Russell 2000 - Lower as of 8/12/11. Prior signal was higher on 10/25/10.
The Mid-Term direction is measured by the 50 day moving average of the index being above (higher) or below (lower) the 200 day moving average of the respective index.

Long Term Direction (Months to Years) - Higher
Dow Jones Industrial Average - Higher as of 10/22/10. Prior signal was lower on 1/2/09.
Russell 2000 - Higher as of 10/15/10. Prior signal was lower on 10/24/08.
The Long Term direction is measured by the 20 month moving average of the index being above (higher) or below (lower) the 30 month moving average of the respective index.

Of the three market' direction signals the one that holds the most significance for us is the mid-term direction signal as it factors the time period which is most relevant for portfolio management. The other two signals are weighed into the portfolio management equation, but the short term direction signal can change signals frequently during minor moves and the long term direction signal is not frequent enough for proper portfolio management.

Moving Averages:
Dow Jones Industrial Average - 12,862.23
50 day moving average - 12240.03 (up)
200 day moving average - 11983.37 (up)
S&P 500 - 1344.90
50 day moving average - 1265.18 (up)
200 day moving average - 1257.46 (up)*
Nasdaq Composite - 2905.66
50 day moving average - 2664.19 (up)
200 day moving average - 2661.63 (up)
Russell 2000 - 831.11
50 day moving average - 750.47 (up)
200 day moving average - 756.80 (down)
Direction of the moving average is in parentheses. A change in direction is noted with an asterisk.

Index Performance:
Dow Jones Industrial Average - 12862.33 up 201.77 or 1.59% for the week, up 5.28% for the year to date
S&P 500 - 1344.90 up 28.57 or 2.17% for the week, up 6.94% for the year to date
Nasdaq Composite - 2905.66 up 89.11 or 3.16% for the week, up 11.54% for the year to date
Russell 2000 - 831.11 up 32.26 or 4.04% for the week, up 12.17% for the year to date

Commodities and Other Data:
Bond prices were enjoying a strong week, but Friday's very positive employment report erased gains. However, the ten year U.S. Treasury note yield remained well below 2% by Friday's close. Oil prices continued their decline breaking below the $97 a barrel support level during the week making a move into the low 90s likely. It closed the week on a sharply higher note by finishing just under $98 a barrel. Gold and silver were sharply lower on Friday leaving the metals market slightly higher for the week.

Market Direction of Gold:
Short Term Direction (Days to Weeks) - Higher
World Gold Price - Higher as of 1/23/12, Prior signal was lower on 12/12/11
The Short Term direction is measured by the index being above (higher) or below (lower) the 50 day moving average of the respective index.

Mid-Term Direction (Weeks to Months) - Higher
World Gold Price - Higher as of 2/11/09, Prior signal was lower on 9/2/08
The Mid-Term direction is measured by the 50 day moving average of the index being above (higher) or below (lower) the 200 day moving average of the respective index.

Long Term Direction (Months to Years) - Higher
World Gold Price - Higher as of 7/1/02, Prior signal was lower on 2/25/97
The Long Term direction is measured by the 20 month moving average of the index being above (higher) or below (lower) the 30 month moving average of the respective index.

Of the three market' direction signals the one that holds the most significance for us is the mid-term direction signal as it factors the time period which is most relevant for portfolio management. The other two signals are weighed into the portfolio management equation, but the short term direction signal can change signals frequently during minor moves and the long term direction signal is not frequent enough for proper portfolio management.

Moving Averages:
World Gold Price - $1744.80 an ounce
50 day moving average - 1664.77 (down)
200 day moving average - 1648.06 (up)
Direction of the moving average is in parentheses. A change in direction is noted with an asterisk.

Sources: bankrate.com,bloomberg.com, briefing.com, Dow Jones News, Financial Times, finviz.com, Investor's Business Daily, marketwatch.com, seekingalpha.com, Thomson Reuters/First Call, U.S. Dept of Treasury, yahoo.com and company web sites and releases.

Leonetti & Associates, LLC views and opinions are as of a certain date and subject to change without notice. The material contained herein has been obtained from sources and data we consider reliable, but we make no guarantee as to its accuracy or completeness. References to specific securities and industries/sectors should not be considered recommendations to buy or sell any security or investment product. Past performance is not a guarantee of future results.

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