For the first week of 2012, it was not a bad week at all. The action wasn't overly impressive for the bulls, but considering most were expecting a pullback, the bulls held strong. The question everyone is pondering is whether we will have some sort of pullback or are we going to continue to rise. Friday may have hinted at more upside in the short-term, but we may need bonds to sell-off faster for this to happen.
To the surprise of few, jobs data came in strong on Friday, not great, but definitely one of the best ones we've had in years. However, this was expected by many due to seasonal hirings and improving weekly claims. The real test that market players are looking for is if next months job's data will be strong or will it show we lost what the seasonality recently provided us. This time next month will be a crucial point to better understand if the economic recovery is going to continue on the pace of the slowest recovery in history or will it start to pick up steam into another the next gear. For the meantime, we have potentially a month of positive sentiment going into the next report and we can not ignore that key point as we navigate these trading waters. Any and all positive sentiment must be used to its fullest as we will regret this when the markets turn bearish again, which will happen at some point since the market always cycles back and forth.
ProShares UltraShort 20+ Year Treasury (NYSEARCA:TBT) - Annotated Chart
Bonds have shown some signs of unraveling this past week, which could fuel a strong surge higher in the equity markets. I continue to use TBT as my shadow chart for the purpose of determining the bulls strength as quickly as possible. We will need to answer whether this move up in TBT was simply a relief bounce or is it the start of an unraveling in bonds that will fuel a surge in equities. I'm staying flexible and not betting aggressive until I see better odds of determining that answer, but I'm definitely biased to the long-side. A pullback makes sense, but a sell-off in bonds would quickly overrule that logic.
Tuesday starts the International CES event. This event has already started to bring some optimism towards technology stocks and I expect this will continue as exciting news of technological advancements and new products hitting the shelves circulate among the masses giving them the urge to buy. This will keep my bias towards technology stocks for the week with recent hot money also flowing into biotechnology as another sector to watch closely.
We've ignored Europe for a bit, so economic data could be a bigger driving force until the handcuff to Europe shows once again. Numerous bond auctions take place this week that could at any time give negative sentiment for our markets. I'm optimistic only seriously negative news would hurt us from Europe over the short-term and most we can shake off in half of a market session (morning/afternoon).
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