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Stock Market Outlook for December 10, 2010

Upcoming Events for Today:
  1. Trade Balance for October will be released at 8:30am.   The market expects -$44.5B versus -$44.0B previous.
  2. Consumer Sentiment for December will be released at 9:55am.   The market expects 72.5 versus 71.6 previous.
  3. The Treasury Budget for November will be released at 2:00pm.   The market expects -$134.0B versus -$120.3B previous.
  The Markets
Market Close % Change Expected ST Low Expected ST High
Dow Jones Industrial Average (^DJI) 11,370.06 -0.02% 11,049.23 11,388.42
Dow Jones Transportation Average (^DJT) 5,083.67 0.87% 4,766.98 5,037.08
Dow Jones Utility Average (^DJU) 395.45 0.32% 393.33 406.84
S&P 500 (^GSPC) 1,233.00 0.38% 1,182.15 1,224.97
S&P/TSE Composite (^GSPTSE) 13,166.94 0.11% 12,623.67 13,166.21
NASDAQ Composite (^IXIC) 2,616.67 0.29% 2,494.50 2,595.06
Austrian Traded Index (^ATX) 2,836.83 1.48% 2,654.21 2,769.12
French CAC 40 (^FCHI) 3,858.05 0.68% 3,686.91 3,903.47
German DAX (^GDAXI) 6,964.16 -0.17% 6,658.02 6,947.02
UK FTSE 100 (^FTSE) 5,808.00 0.23% 5,615.47 5,844.21
Swiss Market Index (^SSMI) 6,537.60 0.45% 6,409.05 6,586.55
Brazilian IBOVESPA (^BVSP) 67,879.00 -0.43% 68,209.85 72,140.26
Mexico’s IPC (^MXX) 37,567.39 -0.13% 35,601.56 37,556.21
Amsterdam Exchange Index (^AEX) 349.38 0.77% 333.71 347.09
New Zealand NZX 50 INDEX GROSS (^NZ50) 3,280.56 -0.42% 3,266.46 3,327.81
China HANG SENG INDEX (^HSI) 23,171.80 0.34% 23,041.27 24,642.45
Korea KOSPI Composite Index (^KS11) 1,988.96 1.70% 1,901.21 1,961.06
Tokyo NIKKEI 225 (^N225) 10,285.88 0.52% 9,328.77 10,187.55

 

Markets edged out gains on Thursday after an upbeat employment report was welcomed from investors.  Weekly Jobless Claims were released at one of the lowest levels of the year at 421,000 for initial claims.   The four week average of this reading, a statistic closely followed by Wall Street analysts, showed continued declines of around 4,000.   Markets opened higher at the opening bell on the upbeat result, but came under pressure when House Democrats voted against considering President Obama’s framework for the extension of Bush-era tax cuts.   Investors were able to regain momentum in the afternoon after a better than expected 30-year bond auction sent interest rates lower and equities higher.   Gains were marginal across the indices, yet markets continue to push higher during what is normally the seasonally weak part of December due to tax-selling pressures.

Current market momentum hinges on the extension of tax-cuts across all income levels in efforts to spur economic growth in the year ahead.    An amended proposal could make its way to the floor on Friday.   The passing of some sort of extension seems to be a certainty at this point, however, one of the issues that looms is the timing.   With only a few days left in this current lame duck session, investors will not wait until the New Year for a decision before acting on the tax uncertainties.   Selling pressures would no doubt kill momentum as positions are alleviated prior to the implementation of higher tax rates should the current tax structure be left to expire.

A continuing trend in the past few sessions has been the participation of financials in pushing broad market indices higher.   The Financial ETF (NYSEARCA:XLF) today finished at new six month highs on a closing basis after trading within a tight range during the summer and fall months.   Seasonal tendencies at this time of year are rather variable with the peak period of strength for the sector customarily commencing in the month of March.   Tendencies could become pronounced earlier that usual next year as expectations of a 2011 recovery in this sector sees investors accumulating exposure for long-term potential.  The next significant point of resistance for the Financial SPDR ETF exists 40 cents higher at $16.00.

With short-term dollar strength and pressure being applied to interest rates, material stocks that were beaten down over the past couple of sessions rebounded, reiterating the strength that persists in various commodities.   Uncertainty, however, does exist right around the corner with speculation that China will tighten monetary policy as soon as this weekend.   Asian stocks were mixed ahead of this policy meeting.

Investor sentiment on Thursday was overly bullish with the put-call ratio closing at 0.71.   The ratio reached a low of 0.39 in early trading but climbed throughout the day as the lows of the session were observed.   Investor complacency continues to be obvious and appropriate protection by way of puts remains warranted to guard against any potential shocks in market activity.   Overbought indications have been revealed and a “buy the rumor, sell the news” scenario may play out as more clarity is offered on Bush-era tax cuts.

image 

  Sectors that Moved the Market
Sector % Price Change % Volume Change
Energy Sector (NYSEARCA:XLE) 0.23% -14.07%
Basic Materials Sector (NYSEARCA:XLB) 0.54% -2.25%
Financial Sector (XLF) 1.23% -20.09%
Health Care Sector (NYSEARCA:XLV) 0.16% -29.71%
Consumer Discretionary Sector (NYSEARCA:XLY) 0.13% -25.80%
Industrials Sector (NYSEARCA:XLI) 0.29% -40.97%
Technology Sector (NYSEARCA:XLK) 0.08% -30.85%
Utilities Sector (NYSEARCA:XLU) 0.42% -24.28%
Consumer Staples Sector (NYSEARCA:XLP) 0.28% -21.13%

 

Financials were once again the runaway leader on the session as investors once again put faith in beleaguered bank stocks as other sectors become increasingly overbought and upside potential becomes limited.   The sector remains vulnerable from all of the events over the past three years, however long-term growth appears certain.   Surprisingly, Technology was the laggard on the day, amounting only a marginal gain.   The Technology SPDR ETF (XLK) has reached a point of resistance as 52-week high levels produced last month are tested.   The sector is influenced by strongly positive seasonal tendencies through to January.

  S&P 500 Index

image

Chart Courtesy of StockCharts.com

Support 2 Support 1 Pivot Point Resistance 1 Resistance 2
1223.66 1228.33 1231.52 1236.19 1239.38

 

Total Returns

Yesterday: 0.38%  –  Trailing 5 days: 0.94%  –  Trailing 30 days: 1.62%

Averages for current day based on past 20 years of data

  • Current Day: 0.02% with 40.00% of sessions gaining
  • Next 7 days: –0.11% with 49.00% of sessions gaining (Max return: 0.78% by December 13 on Average)
  • Next 30 days: 1.12% with 54.14% of sessions gaining (Max return:3.04% by December 28 on Average)
  TSE Composite

image

Chart Courtesy of StockCharts.com

Support 2 Support 1 Pivot Point Resistance 1 Resistance 2
13098.08 13132.51 13178.75 13213.18 13259.42

 

Total Returns

Yesterday: 0.11%  –  Trailing 5 days: 2.13%  –  Trailing 30 days: 1.94%

Averages for current day based on past 10 years of data

  • Current Day: 0.56% with 57.14% of sessions gaining
  • Next 7 days: 0.12% with 48.50% of sessions gaining (Max return: 1.27% by December 14 on Average)
  • Next 30 days: 1.57% with 52.70% of sessions gaining (Max return: 4.12% by December 30 on Average)