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First Week of 2010 Market Outlook

|Includes:DIA, IWM, MON, MOS, QQQ, SPDR S&P 500 Trust ETF (SPY), SPY

The end of the week, the end of the year, and the end of a decade. We’ll get to what happened last weak – and what’s likely in store for the coming week – in a moment. First though, a reality check about the 200X’s. (Here’s a hint… let’s hope the next ten years are better than the last ten.)

Since the End of 1999

Are you ready for it? Here it is…. last decade, the unthinkable happened. The S&P 500 closed 24% below the prior decade’s closing price. The NASDAQ did much worse with a 44% loss, and the Dow did much better by ‘only’ losing 9%. Wow; so much for all those Ibbotson charts suggesting the market never loses ground in any five-year period.

And here’s the thing… if you’re a believer in cyclical markets cycles within the confines of bigger and longer-term secular market cycles, then there could be even more tepid, sideways movement on the way. That’s a discussion for another time and place though. Let’s get to last week’s highlights and next week’s outlook.

Economic Calendar

Though it was a light week in terms of quantity of announcements thanks to the holiday, that didn’t diminish the importance or quality of the data we got.


The Case-Schiller Index is still showing the expected decline in real estate values, but the bleeding is getting slower.

Initial and continuing claims were also both lower. That’s a positive at first glance, though it’s not clear if they’re lower because more folks are working again, or if it’s because unemployment benefits are running out entirely – we’re now a few weeks past the point where the bulk of laid off workers will have expired their rights to unemployment insurance payments. Still, at least it feels and seems better on that front…. or at least ‘less bad’.

The highlight of the week may have been the Conference Board’s consumer confidence reading. It came in at a better-than-expected 52.9 – the sixth time in the last ten that confidence has improved from the prior month’s level, and a score that’s leaps and bounds higher than February’s low of 25.3.

We’ve said it before, but it bears repeating now… the consistent improvement of confidence levels is one of the better bull-market-coincidental indicators we’ve uncovered among the dozens of economic data sets we’ve explored. Hence, we remain bullish in the bigger picture.

Now, on to the smaller (and shorter-term) picture:

Dow Jones Industrial Average Daily Chart


Just for the sake of freshness, let’s shake things up a little this week and look at the Dow rather than the S&P 500. Besides, it’s the most telling of all the major indices we look at.

Bottom line? The Dow did NOT push back above the all-important resistance line around 10,550 (thick, red). Oh, the blue chip index traded above it for a few moments on Tuesday and Wednesday of last week, but never closed above it, and didn’t even come close to staying above it on Thursday.

Part of that weakness may have been the end-of-year lull, with a dose of year-end tax selling. The bulk of the 0.87% loss for the Dow last week, however, could still be the fact that stocks are just overbought, and have no real new catalysts to get them over the hump.

In the meantime, the Dow’s got no floor in sight until 10,218 or so (thick, green), which has been the bounce point since November. If the bulls can hold that line long enough, it should give the longer-term support line (thick, blue). Until we see the DJIA break the ceiling, we’ll assume a repeat of the recent action is in store and plan for a pullback to the 10,200-ish area. It remains to be seen it it’s a buying opportunity, though at this point we have no reason to think it won’t be.

Nasdaq Daily Chart

As for the NASDAQ, let’s just say the index is setting up to pay the price for an excessively strong move two weeks ago. The S&P 500 isn’t quite as vulnerable due to the lack of an explosive move a week earlier. We’ll put one of those two in focus again next week. Just so you know though, neither the VXN nor the VIX are hinting that sentiment will be standing on the way of a small pullback

Earnings Calendar

There aren’t a whole lot of earnings announcements on tap for the coming week, though the ones we do have in the pipeline are from the fertilizer and agricultural group. The Mosaic Company (NYSE:MOS) will post on Monday, and Monsanto (NYSE:MON) announces earnings on Wednesday the 6th.

Trade Well,
Price Headley

Disclosure: No positions.