Market Analysis – When is Santa Coming to Wall Street?

 

Stocks made gains yesterday, but with volume so low and volatility high it is difficult to evaluate the meaning of the technical data.  The course yesterday was a zigzag from start to finish, but it did finish higher as positive news outweighed negative. 

The news from the Labor Department was mixed showing that initial jobless claims rose more than expected, while continuing claims fell.  And it was the continuing claims that caught everyone’s attention, coming in at 5.16 million from 5.46 million for the prior week and versus expectations of 5.45 million.

Another encouraging statistic is that despite a modest gain in the U.S. dollar, the stock market gained, as well.  This is a change since the relationship between the dollar and equity markets in the United States is generally inverse.

In other economic news the Commerce Department said that the U.S. trade deficit narrowed by 7.6% to $32.9 billion despite imports rising 0.4%. This is “suggesting a somewhat improved demand picture domestically,” according to the Wall Street Journal.

Retail stocks were up on Thursday in advance of November retail sales, which are expected to be reported this morning.  Starbucks (SBUX), Home Depot (HD) and Wal-Mart (WMT) had gains.

At the close, the Dow Jones Industrial Average (DJI) was up 69 points to 10,406, the S&P 500 (SPX) gained 6 points to 1,102, and the Nasdaq (NASD) gained 7 points 2,191. 

The NYSE traded just over 1 billion shares, while on the Nasdaq the total shares traded was 567 million.  And even though volume was light, advancers exceeded decliners by almost 6-to-1.

Crude oil for January delivery settled off 13 cents at $70.54 a barrel, and theEnergy Select Sector SPDR (XLE) closed at $55.50, up 68 cents.  For crude oil it was the seventh straight decline, and yet traders are still bearish, looking for a test of the $65 to $68 price range.

Gold (February contract) rose $5.30 to $1,126.20 an ounce,  breaking a four-day losing streak.

What the Markets Are Saying

With the market “doodling around” in such a narrow range supported by the 20- and 50-day moving averages, and the intermediate trendline, investors’ attention seems focused more on Christmas than the stock indices, and maybe that’s good.  At least investors aren’t selling like last year.

In desperation I checked the internal indicators (all overbought) and the sentiment numbers again (neutral) with the hope of finding a hint as to the near-term direction of the market.  But there is nothing more to report today than yesterday, and every day for the last couple of weeks.

Today, then, let’s look at the resistance zones in the event of a breakout, since yesterday we considered the support zones if the current support fails to hold.  All references will be to the S&P 500. 

As noted in prior Daily Market Outlook’s, our intermediate target of 1,120 has been reached, and it is at that point that the bears have decided to establish a defense line.  Since Nov. 16, the bulls have hammered against that line with little success. 

Now a triple-top at 1,120 has formed, and if it was to be broken the next zone of resistance would most likely begin at 1,220, since that number represents a 61.8% recovery, a Fibonacci number, calculated from the full bear market fall of October 2007 to March 2009.  And 1,220 was also the support line in September 2008 that broke, resulting in a massive liquidation and confirmation of a major bear market.

The goal is clear and I think it is only a matter of time before the market breaks to new highs.  But perhaps Santa will not arrive early, and the January Effect will have been appropriately named.

Today’s Trading Landscape

There are no significant earnings to be reported today.

Economic reports due: retail sales (the consensus expects 0.9%, less autos 0.5%), and import and export prices, consumer sentiment (the consensus expects 68.2), and business inventories (the consensus expects -0.2%).  

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