Good Friday all. Depending on where you live, you're probably more accustomed to hurricanes and tornadoes, while we here in Southern California have gotten pretty used to the ground shaking. Early this morning, we had quite an eventful wake-up call in the Southland with a 6.3 earthquake off the coast of Baja that shook things up pretty good. If that wasn't enough, I was sitting watching TV last night and through the sky lights in my living room I kept seeing flashes out of the corner of my eye. Thought I was seeing things only to hear on the news this morning we had quite a nice meteor shower show last night as well. Nice. What the heck is going on?! I sure hope the Mayans weren't correct in their end of the world predictions. Maybe I should rethink how I spend my free time over the next week, eh? All sarcasm aside, I'm fully confident we'll all wake up next Saturday morning to a nice hot cup of coffee and a hearty breakfast. Since we're approaching the end of the year, I thought we'd have a technical look today at how the markets have been shaping up on more of a long-term basis, and what we'll be looking for in the weeks and months ahead. I've also got a couple of very interesting ideas we've identified in recent days which continue to outperform the rest of the markets. Both of these ideas could likely be added to the low risk side of your long-term investing portfolios as safer plays in the event we start to see weakness surface in the weeks ahead. Before we get into that though, from a short-term perspective the indexes are almost perfectly flat on the week as I type with the NASDAQ Composite literally one mere point lower right now than where it closed last Friday. We mentioned earlier in the week volatility was likely going to pick up and that's exactly what we've started seeing. I've included a couple of very small charts here of both the S&P 500 and the NASDAQ Composite isolating the last two weeks of trading. As you can see, the S&P has been the better performer, while the Composite simply appears to be wrestling with itself. A classic case of a dog chasing its tail for no apparent reason. The S&P has also been a better predictor in recent days of what these markets seem to want to do. This hasn't been the case for quite some time. As you know, we've been attributing the S&P's leadership of late to basically a lot of profit taking in tech, which the NASDAQ is heavily weighted towards. However, I'm starting to see the early stages of a rotation of money into safer names. This can often be a prelude to a potential market selloff, because when big money starts thinking there's rough seas ahead, they'll start to move money into safer consumer staple type ideas, as opposed to cyclical stocks and more speculative names. It's still a little too soon to tell though. Once we get past the end of the year, the real truth about profit taking in tech will reveal itself. If tech starts to lead and find a bid in early January, we'll be able to look back and attribute tech's weakness toward the end of the year here to the Obama Effect, which we've explained and coined in previous editions. Another reason we're not jumping the gun here is simply because we've seen this type of early rotation on many occasions over the last three years, only to have the broader markets find their footing and move higher. Will recent history repeat? We're going to find out fairly soon. Since the S&P 500 wants to lead of late, I've included a weekly chart of the index here for your review. I've also included a monthly chart because both are telling us quite different stories. As you can see, the weekly chart of the S&P is clearly in a bearish trend right now. After a big summer run, the S&P has been subject to downside momentum ever since it hit its September highs, of which all it has managed to do since the November low is get back above the 3X3 DMA (blue line) for a few weekly bars. It's pretty clear looking at this weekly chart that the 3X3 DMA is not a very easy nut to crack. This does not suggest the markets are necessarily going higher from here though. Should the S&P somehow find its way back below the 3X3 in the weeks ahead, that's going to be an early indication the bearish trend from late September may resume to the downside. That's not going to be real pretty for the first quarter outlook. However, if the S&P can manage to reverse this week's wash and rinse to the downside over the next week or so, it may catch a lot of traders by surprise if it can find its way back above this week's high. That's a fair amount of work to do, however, never say never. We've seen these markets display a fair amount of resilience at very pivotal points throughout the last few years. The bottom line with the weekly picture is if the S&P closes below the 3X3 on the weekly chart in the next few weeks, I suspect at the very best we'll see the type of volatility we saw early in the summer, which is what built the catalyst for the markets to move higher. As for the monthly picture, surprisingly enough, we're still very bullishly intact. This is where we get our analysis that the long-term picture still looks good for all of the major indexes. It's important to note that long-term chart trends are much tougher to break than any short-term trends will ever be. You can see here ever since the markets bottomed out in the spring of '09, the SPX has only managed to get back below the 3X3 on two separate occasions (both circled), which ultimately proved to be the best buying opportunities of the last four years, other than the spring '09 low, of course. November's rally was extremely important for the bullish case because although November did get below the 3X3 by mid-month, it managed to find a strong underlying bid and close back above it by month's end. See what I mean about long-term trends being difficult to break? Even with all of the fear mongering regarding the fiscal cliff that has come from the media ever since the election, the markets continue to exercise the same impressive resilience it has for the last three years or so. With that being said, while many investors would probably freak out if the markets started to implode, it becomes very clear here that we'd actually get pretty darn excited if the major indexes could sell off hard enough to potentially pose another excellent buying opportunity like we've had only twice before since the markets hit bottom in '09. You can also see why we believe this market has every technical reason to move higher next year. Even if we had a first quarter meltdown, I could build a strong case that 2013 will still end up being very good for stocks. I mentioned above we have two ideas you might want to add to the low risk long-term aspect of your portfolios. In short, I've noticed over the last few weeks that the Amex Networking Index (^NWX) continues to be the best performing index of the ones I track. Although it may seem we focus solely on the big four indexes, we actually track over fifty different sector based indexes in an effort to keep a very close eye on what's getting hot and what's not. The ^NWX has been the leading index on our screens many days over the last couple of weeks. This is no surprise since cloud computing appears to be one of the big growth prospects in the years ahead. In its simplest form, cloud computing is the use of computing resources (hardware and software) that are delivered as a service over a network (typically the Internet). The name comes from the use of a cloud-shaped symbol as an abstraction for the complex infrastructure it contains in system diagrams. Cloud computing entrusts remote services with a user's data, software and computation. Since the ^NWX is made up of primarily your biggest and most successful networking companies, there are early signs here that networking stocks may be finally starting to ramp up once again. As cloud computing starts to take over and gain wide adoption, which has already been taking place for a while now, Cisco (CSCO) and Juniper Networks (JNPR) are two names I don't think we can go wrong with in the years ahead. They've both been properly positioning themselves for this new boom in tech for a while now. Although both stocks have been fairly dead money for a number of years, it may well be time for these darling stocks of 'ole to start waking up again. Just look at the performance and more importantly the divergence in recent days here of these two stocks as they're compared to the S&P. The S&P is in red, CSCO in green and JNPR in blue. See what I mean? Have a great weekend, and we'll see you Monday.