E-Mini S&P 500: Double Top, Pop Or Drop?

Includes: GE, XLF
by: DeWayne Reeves

The E-Mini S&P 500 closed and hit a new high, one quarter of a point better than Thursday. Could it be the "January effect" that is keeping this market propelled? The January effect is the assumption that stock prices will rise in January due to investors rebuilding portfolios after the December alleged drop where investors seek tax losses to offset any potential capital gains.

It is believed to effect the small caps more than the large caps or mid-caps and is thought to be a profitable strategy to take advantage of the phenomenon and buy the stock in December and sell in January for the higher price action. Actually, that may contribute to the sentiment, but positive US economic reports and a more hopeful Euro outlook may be more contributory.

US home sales were reported by the National Association of Realtors as increasing by 5% to an annual rate of 4.61 million units. This is an eleven month high for the market, with fewer properties listed, but below economist's expectations. There are still a multitude of foreclosed homes on the market. One state had been bulldozing some of the foreclosures to preserve neighborhoods from plummeting home prices. Winter usually does show a leaner inventory of homes on the market. Thursday, housing starts were down 4.1% to a seasonally adjusted 657,000 units in December. Single family starts was up 4.4% adding to the sentiment that the housing market may have bottomed and the sector may actually contribute to the economic growth in the US for 2012. Housing permits for new construction dropped 0.1% to an annual rate of 679,000 units.

Friday, Google Inc. (NASDAQ:GOOG), the internet search engine which usually shows a profit, was down 8% due to revenue decreasing from search ads. General Electric (NYSE:GE) reported fourth-quarter revenue down perhaps due to slow appliance sales. GE contends that it will sustain growth in 2012 forecasts. The Fed bought $2.52 billion in bonds as part of "Operation Twist", the program set-up to lower long-term borrowing rates recycled from the 60's. The next FOMC is scheduled for next Tuesday and Wednesday.

The euro FX reached a high Friday of $1.2989, even as CFTC reporting remarked about the excessive net shorts for the fourth straight week. A potential Greek default could derail all the positive sentiment, so we look for an accord to come soon. When the euro FX was initially introduced, it was thought to perhaps become the premier currency and even perhaps take the place of the US dollar.

On the stock side: JP Morgan Chase and Co. (NYSE:JPM) was up 1.16 % to $37.42. Citigroup Inc. (NYSE:C) was up 1.06 % to $29.66. Bank of America (NYSE:BAC) was up 1.58 % to $7.07. Alcoa Inc. (NYSE:AA) was down 0.10 % to $10.16. Boeing Co. (NYSE:BA) was down 0.05 % to $75.52. Caterpillar Inc. (NYSE:CAT) was down 0.10 % to $105.57. General Electric Co. (GE) was unchanged 0.00 % to $19.13. Halliburton Co. (NYSE:HAL) was down 0.14 % to $36.20. Hewlett Packard Co. (NYSE:HPQ) was up 3.61 % to $28.13. SPDR Select Sector Fund - Financial (NYSEARCA:XLF) was up 0.64 % to $14.17.

Monday, we have no major US economic reports due out. We begin the Chinese New Year, the year of the Dragon.

E-Mini S&P 500 Chart

click to enlarge

Monday, what to expect: We maintain a bullish bias unless the E-Mini S&P 500 penetrates $1285.50. Monday, we anticipate an inside to higher day. Friday's range was $1311.75 - $1304.75. The market settled at $1310.75. Our comfort zone or point of control for this market is $1308.00. Our anticipated potential range for Monday's trading is $1320.50 - $1302.50.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.