Preface

I believe that it is important to point out to all my readers, especially those who are not already members of S.O.M.E. (as members are already well-aware of my trading strategy!), that the more volatile the market becomes, whether it trades up or down, is more beneficial to us, as the returns on our options increase dramatically, as observed throughout June and July, so far.

I must say I am a great supporter of the bulls, but will play-along with the bears to extract as much value from our options plays, as possible. I am a great believer in things moving forward and improving as time progresses but I also know that we have to play-the-game to extend our profits. The only catch in this type of market is “knowing” or realizing in which direction it will take, and it seems that we have been able to fulfill this decision in most cases, to gain our profitability.

There are still a few major economic indicators available this week, which are:-

Monday –

• There are no major economic reports scheduled for Monday.

Tuesday –

• There are no major economic reports scheduled for Tuesday.

Wednesday –

• Weekly report on U.S. petroleum supplies.

Thursday –

• Initial jobless claims.

Friday –

• November trade balance and

• Consumer Sentiment in December.

Note:-All earnings dates listed below are tentative and subject to change.

Monday –

• Dollar General Corp. (DG) and • The Pep Boys - Manny, Moe & Jack (PBY)

Tuesday –

• AutoZone Inc. (AZO), The Talbots Inc. (TLB), AeroVironment Inc. (AVAV), Casey's General Stores Inc. (CASY), H&R Block Inc. (HRB) and The Men's Wearhouse Inc. (MW).

Wednesday –

• SAIC Inc. (SAI) and Smith & Wesson Holding Corp. (SWHC).

Thursday –

• Brown-Forman Corp (BF.B), Ciena Corp. (CIEN), Costco Wholesale Corp. (COST), lululemon athletic inc. (LULU), Smithfield Foods Inc. (SFD), Learning Tree International Inc. (LTRE), National Semiconductor Corp. (NSM), and Pall Corporation (PLL).

Friday –

• There are no major earnings reports scheduled for Friday.

Europe's sovereign debt crisis will still hang over global markets this week, but on Wall Street, investors will not be afraid to bet on stocks.

Headlines out of Europe will continue to get attention amid hopes that the European Central Bank will be able to contain the debt crisis on the Continent.

Investors will be watching as the debate over the Bush-era tax cuts heats up in Congress on the heels of November's disappointing jobs report.

The debate to extend the Bush tax cuts will likely gain momentum in the coming week, after a weaker-than-expected November jobs report on Friday dashed hopes for a quicker recovery.

Wall Street has shown its ability to hold onto gains, or quickly recover from losses in the past week despite Europe's debt woes, suggesting that investors are confident of a sustained rally.

"When things don't fall apart on bad news, you know that the market is no longer vulnerable. The overall sentiment is pretty solid," said Randy Frederick, director of trading and derivatives at Schwab Center for Financial Research in Austin, Texas.

Stocks got off to a strong start in December as a wave of better-than-expected economic reports offset concerns on the sovereign debt crisis in the eurozone. Expectations for a stronger recovery were tempered somewhat on Friday, after the Labor Department said the economy added only 39,000 jobs in November, far below the 140,000 economists were expecting.

With unemployment inching higher to 9.8%, Congress is under pressure to resolve uncertainties on taxes and to reauthorize extended unemployment benefits that expired in November.

Earlier in the week, President Obama appointed Treasury Secretary Timothy Geithner and budgets director Jack Lew to work with both parties in Congress to resolve the issue.

Stocks in the past week gained 2.6 percent to 11,382, and the S&P 500 gained nearly 3 percent to 1224. The market ended Friday slightly higher, even as the November employment report showed a shockingly low increase in new jobs.

There is deep concern that the disappointing jobs report is signaling a weaker fourth quarter than other economic data has been indicating.

The Fed was criticized last month about the inflationary threat of its second round of quantitative easing, totaling $600 billion, and its impact on foreign currencies.

Some traders Friday immediately embraced the idea that the Fed's controversial quantitative easing program is a necessity that will help fix the economy and keep juicing risk assets.

S&P 500 Benchmark

The outstanding put-to-call ratio on index options, heavily focused on the S&P 500 benchmark, dropped from 1.32 last week to 1.29, showing bullish signs for next week.

The ratio, which is always greater than 1, is the primary hedging vehicle for institutional investors. The ratio rises with a market rally as the possibility of a pullback also increases.

"The ability (to not fall apart) is helping investors remain upbeat on short-term prospects for stocks. We may not see this continue until the end of January next year, but the month of December certainly looks encouraging."

The VIX

The CBOE Volatility Index or VIX .VIX, Wall Street's so-called fear gauge, fell despite a decline in stocks earlier in the day as traders saw fewer reasons to buy protection.

The index, which usually moves inverse to the S&P 500 benchmark, strayed from the relationship and closed at its lowest since April.

The iPath S&P 500 VIX Short Term Futures exchange-traded note (BARC.L) (VXX.P) also notched a new year low of $41.51 on Friday. The ETN, which offers directional volatility exposure, is based off of the front two-month futures on the VIX.

"There is definitely a trend in the VXX to try to get short in the ETN," said Dan Deming, a VIX options trader at Stutland Equities.

S&P 500 Index

Fears that Europe's debt crisis could spiral out of control have pushed stocks off two-year highs hit earlier this month. Last week, the S&P 500 was down 3 percent from Nov. 5.

But the index recovered to the early November levels this week as fears were countered by a spate of healthy economic data and an upbeat outlook on consumer spending during the holiday shopping season.

"Europe is kind of its own play now," said Jeff Roach, chief economist at Horizon Investments in Charlotte, North Carolina, adding that investors are starting to brush off the longer-term macro issues.

Europe and Washington could hold the key for financial markets in the week ahead.

"I don't think Ireland is bringing down the global economy. That's hard to believe... I think we have to separate a bit of sovereign Europe from corporate Europe. Corporate Europe looks pretty healthy. Corporate Europe is leading the world in terms of revenues and earnings surprises."

Richard Bernstein

Richard Bernstein Capital Management

European finance ministers meet Monday and Tuesday as the Irish vote on their budget, a contingency for the Irish aid package. The Obama Administration and Congress, meanwhile, are expected to continue to move toward a compromise that would extend all of the Bush tax cuts for at least a year.

There is little economic data, but traders will focus on weekly jobless claims and any anecdotes on holiday shopping, to see whether the consumer will continue to spend or was just lured in by November sales.

Bernanke Comments

For that reason, investors will also be focused on Fed Chairman Ben Bernanke's comments on "60 Minutes" Sunday night although broadcast network CBS issued a press release with some highlights of his comments Friday, ahead of the market close. That release, which included no direct quotes, created a flurry that sent the euro to its highs of the day. The euro ended at about 1.3411, up more than 1.5 percent.

The CBS release said Bernanke, interviewed four days earlier, did not rule out more asset purchases beyond the $600 billion announced in November. However, the Fed has made said itself that it would be flexible with quantitative easing, based on economic conditions.

"They probably didn't appreciate the market's sensitivity to it. Bernanke isn't breaking any new ground. He didn't know the jobs number when he was interviewed," said Marc Chandler, head of foreign exchange strategy at Brown Brothers Harriman. Friday's jobs report showed a gain of just 39,000 non farm payrolls, compared to expectations for 149,000.

The Dollar and the Euro

Chandler said the first two days of the coming week could be important for the dollar. He said the Eurozone finance ministers meet amid rumors that they are going to increase the size of their bailout fund. "If they increase the size, people will say they're making space for Spain...but I don't think they will do it," he said.

Chandler expects a volatile couple of days for currency markets and based on the tightly correlated trade with equities, it may mean a volatile week for stocks.

"I think it's just not clear whether what's going on in Europe is going to get peoples' attention over the horrific U.S. jobs data and QE3 (expanded quantitative easing). Is that going to become a driver or will the developments in Europe be the driver?" he said.

The dollar and euro have been on a seesaw since the Fed first discussed quantitative easing plans in August. The dollar fell sharply on the idea of Fed easing, but rose relative to the euro when news around the sovereign crisis heated up. The Fed is buying Treasurys under its QE program, which in theory puts more money into the system and helps reflate asset prices.

Tax Cuts?

Republicans wish to extend the Bush tax cuts across the board permanently, while the Obama administration is willing to negotiate only a temporary extension of tax cuts for the wealthy.

If the tax cuts expire, individuals will be forced to pay higher taxes on their incomes as tax brackets move up. Capital-gains taxes will rise from 15% to 20% and qualified dividends will be taxed at the ordinary income bracket. Married couples will pay higher taxes; H&R Block estimates that a couple earning $80,000 a year could see an additional $221 withheld from their bimonthly paycheck.

Congress and Unemployment

The markets will also follow the current debate in Congress to reauthorize the extended unemployment benefits program that expired at the end of November.

Congress expanded unemployment insurance benefits by creating Emergency Unemployment Compensation (EUC) and 100% federal funding of Extended Benefits (EB). Those programs provide unemployment insurance benefits after a worker exhausts state benefits, helping when it takes longer to find a job. Those extensions began to expire Nov. 30.

The Labor Department estimates that 2 million Americans will lose aid by the end of the year if Congress does not act.

On Thursday the White House Council of Economic Advisers said in a report that failure to extend the program could cost 600,000 jobs in 2011 because of a drop in consumption.

For the last half-century, Congress has consistently extended unemployment benefits when economic circumstances were serious enough to make finding a job difficult. Given the current labor market conditions, failing to continue the extensions now "would be unprecedented," the report said.

Holiday Shopping

Analysts expect an adverse effect on the holiday shopping season and retailers if the benefits expire. Investors will be following retail stocks, including Amazon (AMZN), Wal-Mart (WMT), Target (TGT) and Macy's (M), closely for any impact on the holiday shopping season, which so far has been strong.

European News Versus U.S. Credit Crisis

News out of Europe will continue to be monitored even as concerns on the crisis showed signs of abating recently. Chris Low, economist at FTN Financial, said investors in the U.S. cannot ignore problems in Europe even though economic reports in the U.S. show signs of recovery.

"The thing about Europe is this isn't really a European crisis," Low said. "It is the continuation of the ongoing credit crisis. We can shrug off the problems outside the U.S. if we manage to tame those problems here. Two things need to happen (in the U.S. economy). One, jobs have to improve. And two, credit growth has to stabilize. There is not enough investment nor enough spending. The securitization market needs to come back. Fixing private-sector credit also will allow the government to back off their own borrowing a bit," he said.

Art Hogan of Jefferies does not expect the Fed to make any changes to its plans in the next meeting. "QE2 is already in place. It does not have to be readdressed," said Hogan, adding that the weak jobs report probably meant that the Fed had a good justification for going ahead with quantitative easing.

Upcoming Economic Data

Initial weekly claims data, which will be released on Thursday, would be the biggest economic report to watch out for in the coming week. Jobless claims are expected to drop to 430,000 in the week ended Dec. 4, according to consensus estimates from Briefing.com.

The University of Michigan consumer sentiment index on Friday will be the other noteworthy report. Consumer sentiment is expected to climb to 72.5 in December from 71.6 in November.

Other reports this week include consumer credit data on Tuesday, mortgage applications on Wednesday, the wholesale inventories report on Thursday and the trade balance report on Friday.

Quantitative Easing

Quantitative easing was also expected to drive interest rates lower, but just the reverse has happened since the Fed embarked on its program. The 10-year ended Friday with a yield of 3.016 percent, its highest level since July 27.

Treasury's Issuance

Another big event traders are watching is the Treasury's issuance of $32 billion in 3-year notes; $21 billion in 10-year notes, and $13 billion in 30-year bonds in separate auctions Tuesday through Thursday.

"We'll just see how we digest (Treasury) supply next week. We'll see what happens in Europe, and we'll watch the (weekly jobless) claims number. The claims will be a real key thing for people to look at," said Deutsche Bank chief U.S. economist Joseph LaVorgna.

There's a relatively light schedule of economic reports. Besides the claims report Thursday, there is consumer credit on Tuesday. Wholesale trade is also reported Thursday, and international trade and import prices are reported Friday. Consumer sentiment is reported Friday.

LaVorgna said there's not much beyond the claims data that will make much difference to the economic picture. "The (employment) numbers are the numbers and the fact is they don't seem to jibe with the November labor data, but, hey, ultimately we care about the employment report and that's the report that matters most right now," he said.

"At the same time, the information is making me think the current quarter is not as good as we thought. It could be under 3 (percent growth) versus over 3," he said, adding he is not yet changing his forecast.

Introduction

During the past few weeks, several longer-term resistance levels capping the S&P 500 Index (SPX) have been highlighted and evidence, via our options analysis, that hedge fund managers had mostly returned to the sidelines after a period of accumulation from late August into early November.

Therefore, this leads to the conclusion that while ample sideline money is a necessary condition to support a continued bullish market environment, a continued absence of hedge fund accumulation could be an inhibitor to an upside breakout, as the market is left to the mercy of the high-frequency traders and their mean-reverting activities. Therefore, the risk of a trading range similar to the end of 2009 was viewed as a growing possibility.

Increase of a Sustained Upside Breakout

The SPX comes into the new week trading around the April and November 2010 peaks. After closing the month of November below the 1,200 century mark and its 80-month moving average, it has quickly rallied above these resistance areas. As we enter the traditionally strong December month, the possibility of a sustained upside breakout has increased for the following reasons.

1. The 20-day combined buy-to-open put/call volume ratio on the SPDR S&P 500 ETF Trust (SPY), PowerShares QQQ Trust (QQQQ) and iShares Russell 2000 Index Fund (IWM) has turned higher, driven mostly by a dramatic increase in put buying on IWM. The ratios on SPY and QQQQ are no longer sharply declining, but haven't yet risen as sharply as the IWM's. An increase in put buying is usually coincidental with hedge fund accumulation, suggesting strong hands are in accumulation phase again, key to continued market strength.

2. IWM has pushed above its April 2010 peak. In early March, the IWM broke out above its January highs, but the Nasdaq Composite and SPX did not break out above their respective highs until one week and two weeks later, respectively. Small-cap leadership may signal an imminent breakout in larger-cap indexes.

3. Reactions to recent headlines indicate bull market conditions persist. Last week, for example, we stated that the recent price action in the U.S. market – indifferent, at best –might be considered a win for the bulls. That is, stocks showed relative resilience despite a constant stream of negative headlines that could have easily driven stocks below support levels – namely the re-emergence of the European sovereign debt crisis, the growing possibility of a Chinese rate hike, hostilities between North and South Korea, charges of insider trading brought against some hedge funds, and Friday's extremely disappointing employment report. The market bent, but certainly did not break amid these headlines.

4. The"VIX Premium" indicator, which compares the CBOE Market Volatility Index (VIX – 17.88) to the SPX's actual volatility (15.96), is indicating lower volatility ahead, which is usually coincidental with higher stock prices. Per the chart below, note that during the past couple of years, when the VIX is trading at significant premium to SPX historical volatility (significant as defined by the VIX trading at a level that is double its actual volatility), it is a precursor to higher volatility and a market pullback. On the other hand, when the VIX is at a relatively small premium to actual SPX volatility, lower volatility has followed amid a rising SPX. In early November, this indicator correctly forecasted higher volatility and an SPX decline, as the VIX traded 140% above SPX historical volatility. The "VIX premium" has since eroded substantially, as you can see below.

5. The "Black Friday" Indicator: By studying the performance of the SPX in the week after Black Friday it can be found that when the market rallied in the week following Black Friday, there is a historical tendency for the market to experience a stronger-than-normal rally into year-end, compared to instances when the market experienced negative returns in the week following Black Friday. Last week, the SPX rallied: a positive omen for the rest of the year.

Economic indicators this week will be fairly light, with the Institute for Supply Management releasing its semi-annual economic forecasts for the U.S. manufacturing and services sectors on Tuesday. The weekly mortgage data on Wednesday and jobless claims on Thursday will still get close scrutiny.

On Friday, Wall Street will watch for reports on import and export prices in November, the international trade deficit for October, and a preliminary reading December consumer sentiment from the Thomson Reuters/University of Michigan Surveys of Consumers.

Consumer Sentiment Index

The preliminary University of Michigan Consumer Sentiment Index is expected to show an increase in December to 72.2 from the final reading of 71.6 in November, according to a Briefing.com consensus. The index grew in the prior month due to the performance of the equity market and better employment numbers.

U.S. stocks capped their best two-day performance since July this week as better-than-expected retail and home sales encouraged investors.

Appearances by Federal Reserve Officials

Among appearances by Federal Reserve officials:

• Federal Reserve Chairman Ben Bernanke will appear on CBS's "60 Minutes" show this Sunday, the television network said. Bernanke is expected to discuss the unemployment rate, the deficit and the Fed's decision to purchase $600 billion in U.S. Treasurys in an effort to boost a weak economy.

Significant Happenings

• U.S. stock exchanges this week are expected to ask regulators to extend for four additional months a pilot program that limits price swings in some stocks put in place last summer in the wake of the market's May 6 "flash crash," according to people familiar with the matter. Market operators plan to seek an extension until April 11 of so-called circuit breakers for individual stocks and exchange-traded funds, the people said.

A handful of retailers, apparel companies and the nation's top two tax preparers are among those planning to report their latest quarterly earnings results next week.

Talbots Inc. (TLB), Men's Wearhouse Inc. (MW) and Oxford Industries Inc. (OXM)

Talbots Inc. (TLB), Men's Wearhouse Inc. (MW) and Oxford Industries Inc. (OXM) are expected to report their latest quarterly results this week. Analysts polled by Thomson Reuters projected a mixed performance from the trio, with top- and bottom-line growth only expected from Men's Wearhouse, which operates stores for men in the U.S. and Canada.

H&R Block Inc. (HRB) and Jackson Hewitt Tax Service Inc. (JTX)

Meanwhile, tax-service providers H&R Block Inc. (HRB) and Jackson Hewitt Tax Service Inc. (JTX) are scheduled to report results on Tuesday and Friday, respectively. Wall Street analysts expected H&R Block to report slightly better results, while Jackson Hewitt's fiscal second-quarter loss is seen widening.

AutoZone Inc. (AZO) and Smith & Wesson Holding Corp. (SWHC)

Other companies expected to report their latest earnings next week include auto-parts retailer AutoZone Inc. (AZO) on Tuesday and gun maker Smith & Wesson Holding Corp. (NASDAQ:SWHC) on Wednesday.

Further Insight to Companies

• Verizon Wireless said it plans to begin offering its faster next-generation wireless service on Sunday as the carrier officially jumps into the 4G fray. The carrier -- jointly owned by Verizon Communications Inc. (VZ) and Vodafone Group Plc (VOD) -- said its new fourth-generation service initially will be for laptop aircards only, with additional devices, including smartphones, coming by the middle of next year.

• The Food and Drug Administration on Friday said Contrave, a proposed weight-loss drug from Orexigen Therapeutics Inc. (OREX), raised blood pressure in some patients but met one of the agency's standards for being an effective weight-loss treatment. Contrave, which is being developed with Takeda Pharmaceutical Co., is a combination of two drugs already on the market. The product will be reviewed by an FDA advisory panel next week.

Introduction

I have data from the International Securities Exchange (ISE) and Chicago Board of options Exchange (CBOE) that looks specifically at buy-to-open (BTO) option data. At the end of November, by using that data we can see if there were any dramatic changes in the behavior of option buyers toward the major exchange-traded funds (ETF).

XLF: Below is a table of some of the major ETFs that were considered. It compares last month's BTO put/call ratio to the other months of 2010. The Financial Select Sector SPDR (XLF) really stands out in this table. The average monthly BTO put/call ratio for the XLF before November was 2.93. But November saw this number drop to 0.45. In other words, before November, traders were buying about three puts for every call, but then in November they bought two calls for every put.

The table below shows the monthly BTO puts (red bars), calls (green bars) and the put/call ratio (black bars) for XLF each month of this year. BTO put volume has been declining for the last several months. BTO calls almost doubled from the month before, and that's how we ended up with the extremely low put/call ratio in November. This suggests that financial stocks are being shorted (with traders buying calls as hedges), which explains the underperformance of the XLF over the last few months compared to the broader S&P 500 Index.

The big money seems to be bearish on financial stocks. They are shorting the stocks and buying XLF calls to hedge. As long as this persists it will be a significant headwind, and the XLF should continue to underperform the S&P 500. However, if this market gains any traction and begins taking out new highs, or if some good news comes out for this sector, then it could force the shorts to cover or -- even better -- completely surrender and become bullish on financial stocks. In other words, the bearish sentiment may be setting up a fierce rally in this sector. With XLF breaking above its 50-day and 200-day moving averages on the first two days of December, it may already have started. In the case of a market rally, this is a sector where traders might want some exposure.

Introduction

The markets surged higher last week, in effect erasing the past months pullback in just a few sessions. It was a strong display by the bulls as the markets held support after threatening to break down earlier in the week. The markets are entering a seasonably strong period and it will be interesting to see if the markets can build on this week's strength. Investor Sentiment measures such as the AAII Investor Sentiment Survey is at high levels, warning of investor complacency.

S&P 500 SPDRS (NYSE:SPY) ETF

The S&P500 as represented by the S&P 500 SPDRS (NYSE:SPY) ETF is approaching a key level near $123 as the week closed out. SPY experienced a strong bounce from its rising 50-day moving average which cemented the $118 area as support. It's possible that SPY will retrace back towards its rising 20-day moving average or even the unfilled gap near $119. However, SPY should remain above $118 in any healthy scenario. A move below this level should not be ignored by traders

The Powershares QQQ ETF (Nasdaq:QQQQ) also rallied back to its November highs and never seriously threatened to fall back into its prior base under $50. While not likely, this would still be the key level to watch on any weakness. QQQQ instead is bearing down on the $54 level and trader should monitor this area for a breakout. It would be interesting if QQQQ challenged the $55.07 high set during the last bull market. A move above this level would take QQQQ to levels not seen since 2001.

Much like SPY, the Diamonds Trust, Series 1 (NYSE:DIA) ETF avoided a breakdown earlier last week. DIA slipped under its 50-day moving average for one session, before gapping higher and surging the rest of the week. DIA ended the week near its November highs and proved the $110 area as solid support. Much like SPY, it's likely that DIA will do some backing and filling, but DIA should not approach or drop under $110. A move below this level would be very negative.

The iShares Russell 2000 Index (NYSE:IWM), which has quietly been taking a leadership role, announced it loud and clear this week by clearing its November highs. It also finished well into levels not seen since the bear market began. The $74 level had been acting as stiff resistance, and now that it has been cleared, traders should monitor this area as a likely support area on any near-term weakness. This continues to be a key index to monitor as we head into the year's final month, as there tends to be a rotation into smallcaps near year-end. It is bullish for this group to lead the way higher as it shows that investors are willing to bet on riskier asset classes, so trader should continue to monitor this groups role as a leader.

The past several weeks have seen the markets probing for support, particularly with SPY and DIA. Now that the markets held support, traders have a very key level to monitor on the downside. With IWM leading the charge higher, it seems likely that the other indexes will follow suit. The initial thrust has been pretty sharp, so there may be some backing and filling before the next move higher. Traders should now keep a sharp eye on the support levels that held over the past few weeks, as this would be the line in the sand in case something goes wrong for the bulls. Otherwise, this rally needs to be assumed valid until proven otherwise.

Traders should take this into consideration and become adventurous and start ”trading options”.

Introduction

The markets rebounded sharply yesterday, and it's time for traders to look under the hood to see which sectors led the way higher. Ideally, the stock market should be led higher by stocks typically associated with a recovering or growing economy. The transports are one group that performed very well, with the Dow Jones Transport Average rallying to new recovery highs, well ahead of the general markets. Whether they specialize in land, air or sea transport, this group delivers the goods Americans use everyday, which is why these stocks tend be one of the first groups to show signs of a recovery.

The transportation sector is a category of stocks related to the transportation of goods for consumers. This group is very sensitive to both the price of oil-based products and the strength of the economy. When the price of oil rises, transport stocks typically drop as it becomes more expensive for them to deliver products. Conversely, a rebounding economy tends to provide a boost to transports as market participants position themselves for the prospects of increasing demand for goods.

CSX Corporation (NYSE:CSX)

The rail companies are one subset of the transports and CSX Corporation (NYSE:CSX) is one of the leading stocks in this area. CSX is also performing well as a stock, and it is currently close to a breakout. The company cleared a trading range in September and then rallied through early November before it began to trade sideways as the general markets began a correction, staying between $60 and $62.50 for a few weeks. This was bullish behavior as CSX refused to give up much ground in the face of general market weakness. CSX is now attempting to clear this small consolidation and with a strong push, it could test its all-time highs near $70.

Moving from land to air transport, United Continental Holdings (NYSE:UAL ) is an airline that is also showing bullish behavior. UAL cleared a base in October and also settled into a tight consolidation as the markets corrected. The current consolidation is taking the shape of a bull flag and a move above $29.75 could lead to a powerful continuation of the October breakout.

Among air and sea transports, Teekay Lng Partners (NYSE:TGP ) is a shipper that is showing behavior consistent with the bullish behavior mentioned above. TGP built a base from July through the end of October as it traded between $30 and $35 per share. It recently climbed above this level even as the markets were showing weakness. Traders should focus on stocks that are setting new highs well ahead of the general stock market as TGP is doing.

United Parcel Service (NYSE:UPS ) is a transport company that spans air and land transport. UPS is a good indicator of consumer strength because it ships a very large portion of the goods bought by Americans. The holiday season is typically the busiest time of year for UPS and the stock is making an important move just as this season approaches. UPS had a sharp pullback from May through July, but recovered all of its losses gradually over the next five months. It had been trading in a tight range for most of the fall before finally breaking out a few sessions ago. UPS is clearly above its base now and traders should monitor the $70 area for support if it pulls back.

The fact that the transports are hitting new highs while the general markets attempt to end their recent pullback bodes well for the prospects of higher prices. Beyond this, it is a good sign that participation is occurring from all three categories of land, sea and air transport. Each of these categories services a different part of the economy and it is a good sign that they are all moving in unison. It is also a good sign that they are moving up despite the gradual rise in oil prices over the past few months as well. All of these signs are positive, giving trader’s reason to suspect this group is headed higher.

As the year wraps up, portfolio managers will continue to chase outperforming stocks and sell some laggards to keep their balance sheets healthy.

The three-day moving average of stocks hitting new 52-week highs on the New York Stock Exchange accelerated at the end of November and is now close to 250, while stocks making new 52-week lows edged down in December and remained slight.

The portfolio managers are "all trying to scramble to catch up. They have performance risk, they have bonus risk and ultimately they have job risk," said Jeffrey Saut, chief investment strategist at Raymond James in St. Petersburg, Florida.

Jefferies managing director Art Hogan said he expects to see some last minute shopping in the stock market, or "performance chasing" by fund managers who are seeking better returns before year end.

"Part of the conversation will be next week's gamesmanship about the extension of the tax cuts. That's about the most important thing we talk about next week, besides how does holiday shopping look," Hogan said.

Many analysts and traders expect a full extension of the tax cuts, and that would keep the maximum 15 percent rate for capital gains and dividends in place, a plus for stocks. "Our data points on production are starting to heat up...right now 46 of 55 industries are experiencing improved capacity utilization rates. That doesn't sound very double-dippish to me. A year ago it was 11."

Richard Bernstein

Richard Bernstein Capital Management

"I don't think it's priced in," said Hogan. "So I think the market goes up for not the least of reasons but that it takes a great deal of uncertainty out of corporate America's hands. You've got a catalyst." If all of the tax cuts don't get extended, he said it would be a negative catalyst.

Richard Bernstein, CEO of Richard Bernstein Capital Management, said he expects to see economic data to continue to improve for the next six to nine months and that will help stocks. He also said he is looking at the longer trend of jobs data.

Bernstein has favored small cap stocks and continues to see them making gains, as long as the economic data improves. "They will continue to outperform for that time period at least. It's not like you're seeing a flood of capital into small cap companies," he said.

He said U.S. stocks are likely to surprise on the upside next year, and he thinks emerging markets will disappoint. Europe may also be more positive than expected.

"I don't think Ireland is bringing down the global economy. That's hard to believe...I think we have to separate a bit of sovereign Europe from corporate Europe. Corporate Europe looks pretty healthy. Corporate Europe is leading the world in terms of revenues and earnings surprises. For Europe as a whole, that even includes the financial companies. Corporate Europe is at least doing well," he said.

"I think the emerging markets are going to disappoint next year...Roughly 40 percent of emerging markets companies reported negative earnings surprises in the last reporting period. The U.S. were 70 percent positive, 20 percent negative. It was roughly double the rate of negative surprises in the United States and their values are quite lofty as expectations are very high," he said.

Bernstein has also liked Treasurys but he has recently changed his positioning. "We haven't pared the weighting of Treasurys. We have shortened the duration pretty dramatically. We're at the place in the cycle where you have upward pressure on longer-term interest rates...It's simply because the economy is getting better," he said.

He also likes stock sectors that reflect recovery.

"We are overweight energy and materials. That's reasonably new for us. The reason why is we believe we're actually heading into the early stages of the mid-phase of the economic cycle. Why do we say that? Our data points on production are starting to heat up...right now 46 of 55 industries are experiencing improved capacity utilization rates. That doesn't sound very double-dippish to me. A year ago it was 11," he said.

Bernstein said he thinks the market has far to run, though he doesn't provide targets. "The market is up more than 80 percent off its trough, and it's amazing to say we're still in the early phase of the bull market. The early phase of the bull market is always characterized by doubts. It can't happen and won't happen and certainly won't continue. And I think that's where we are," Bernstein said.