Stocks plunged around the world on Thursday as the US took off in observance of the Thanksgiving day holiday. On Friday stocks sold off as investors unloaded their positions ahead of the the weekend. Decliners outnumbered advancers by nearly 6-to-1 on the NYSE and by more than 4-to-1 on the Nasdaq exchange.  Volume totals were lighter than average, which was expected due to the holiday-shortened trading session's 1PM close. 

The catalyst which shocked the world was when Dubai World, the most indebted of Dubai’s state-sponsored companies, had trouble restructuring their debt. The company currently owes $60 billion of which $22 billion must be refinanced by 2011. The fact that Dubai World is struggling with their existing obligations led many to question how other, less solvent, emerging market companies will fare. Since March emerging markets have enjoyed some of the largest gains as the global economy recovers from the worst financial crisis since the great depression.

From our perspective, the current rally is under pressure as investors struggle for direction.  Leadership has narrowed considerably in recent weeks as the major averages edge higher on lighter volume. It is also worrisome to see the small-cap Russell 2000 and S&P 600 indexes continue to woefully under perform their peers. The one saving grace has been the weak dollar. This column has repeatedly mentioned the inverse relationship between the US dollar and dollar denominated assets (i.e. stocks and commodities). This relationship remains critical as this rally continues.

PICTURED: The Small Cap S&P 600 Index has encountered resistance and struggled below its 50-day moving average line.

Charts courtesy www.stockcharts.com

PICTURED 1: The Broker/Dealer Index ($XBD -2.38%) sank to its worst close since early September. Weak action in financial shares raises concerns because the financial group is a "leading indicator" that has proven reliable.

Charts courtesy www.stockcharts.com

PICTURED 2: The Bank Index ($BKX -2.67%) continues to struggle below its 50-day moving average (DMA) line.

Credit Acceptance Corp (CACC -$1.04 or -3.00% to $33.63) gapped down today amid widespread market weakness and closed just under its 50-day moving average (DMA) line and also under recent low closes with a loss on light volume. Its color code was changed to yellow recently with new pivot point and max buy levels noted. After a 6-week flat base it is continuing its consolidation above prior chart highs in the $32 area, building a base-on-base pattern. The Finance - Consumer/Commercial Loans firm has maintained a great track record of annual and quarterly sales revenues and earnings increases that satisfy the C and A criteria of the investment system.  The high-ranked leader's 9/29/09 breakout gain was backed by more than 2 times average volume. Since featured it has also risen above its 2006-2007 highs ($33-34) to new all-time highs, which is a very reassuring sign of strength. CACC was featured in yellow in the 9/29/09 mid-day report (read here).

Investors might be concerned about the weakness and wait for signs of support while considering the current consolidation an opportunity to accumulate shares on the stock's first pullback to its 50 DMA line since its bullish breakout. However, it has met the definition of a new "flat base" which could eventually be followed by a fresh technical buy signal. In fact, a base-on-base pattern is considered to be a very solid set-up pattern. Patience may allow investors to see more proof of institutional buying demand (the I criteria), and make initial buys or add-on buying efforts in the event of a powerful breakout above its $37 high with volume.  Meanwhile, further weakness would raise more serious concerns, especially if volume expands behind more damaging losses.

Color Codes Explained :
Y - Better candidates highlighted by our staff of experts.
G - Previously featured in past reports as yellow but may no longer be buyable under the guidelines.