New Year’s Rally Wanes – Daily market commentary by Toni Hansen

January 4, 2011

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DAILY COMMENTARY

Market Jumps Into the New Year (Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.) TUESDAY’S MARKET WRAP-UP Market Snapshot for January 2, 2011 (9:00 p.m. ET): Closing Prices: DOW 12,397.38 (+179.82, +1.47%), SandP 500 1,277.06 (+19.46, +1.55%), NASDAQ 2,648.72 (+43.57, +1.67%), Nikkei 225 8,560.19 (+104.84, +1.24%), DAX 6,166.57 (+91.05, +1.5%), FTSE 5,699.91 (+127.63, +2.29%) OIL 102.83, GOLD 1,601.60, SILVER 29.355 EURO 1.3045, YEN 76.64, BRITISH POUND 1.5643, U.S. DOLLAR INDEX 79.97

Market Takes Cue from Overseas Strength The market had little to go on domestically as the new year began, so it took its cues from strength overseas. While unemployment is still running high in many countries, Germany reported its lowest unemployment rate in two decades. Additionally, China, which has been on everyone’s radar recently after showing signs of a slowdown last year, reported a rise in services and manufacturing in December. The result was a strong opening gap in the indices Tuesday morning for the first day of trading in 2012.

The market contined to push higher throughout the first 45 minutes of the session thanks in part to more reassuring data at home. The Institute for Supply Management’s manufacturing survey showed an increase from 52.7 in November to 53.9 this past month. Furthermore, the Commerce Department reported a 1.2% increase in construction spending in November, which was the third increase in four months. Although the gap on Tuesday morning was larger-than-average, the rally ran out of steam 15 minutes after the morning’s domestic data came out. This is actually quite common. Except in instances when the overall market is gapping out of a dailt trading channel, larger-than-average gaps in the indices have a tendency to fill. Tuesday’s gap was somewhere in between. It was a gap out of a 60 minute trading range, but held the daily uptrend channel of the past several weeks. This left it having a difficult time going anywhere once the regular session was under way and the day’s range was narrow compared to most over the past year.

The day’s action intraday was still decent for daytraders, although the narrower range meant greater risk compared to reward on individual setups intraday. The best moves came from catching the 15 minute reversals. These fell at 10:45 a.m. ET with one of the morning’s major correction periods, 13:00 ET at another major correction period, and 15:00 ET, which was yet another major correction period. Strong support and resistance levels, as well as trend placement on the 5 minute time frames, helped these moves follow through. The 13:00 move also found help from the Fed, which announced that it would be providing quarterly updates on its interest rate position regarding how long it intended to keep rates low.

INDEX WRAP-UP

The Dow Jones Industrial Average ($DJI) ended the day on Tuesday with a gain of 179.82 points, or 1.47%, and closed at 12,397.38. Twenty-six of the Dow’s thirty index components posted a gain. The strongest performers were Alcoa (AA) (+6.71%), JP Morgan (JPM) (+5.20%), and Bank of America (BAC) (+4.32%). The weakest were McDonalds (MCD) (-1.49%) and Verizon (VZ) (-0.97%). The SandP 500 ($SPX) finished the session with a gain of 19.46 points, or 1.55%, and closed at 1,277.06. The top performing industry groups were materials (+3%) and financials (+2.8%). The strongest individual percentage performers in the index were Nabors Industries (NBR) (+9.69%), Peabody Energy (BTU) (+9.54%), and MetroPCS Communications (PCS) (+8.18%). Utilities were the only group as a whole to post a loss. The weakest individual performer was Williams Cos. (WMB) with a loss of 18.78%. It was followed by Altria Group (MO) (-3.68%) and Public Svc. Enterprise Group (PEG) (-3.64%). The Nasdaq Composite ($COMPX) ended the session higher by 43.57 points, or 1.67%, on Tuesday and it closed at 2,648.72. The strongest performers in the Nasdaq-100 ($NDX) were Warner Chilcott (WCRX) (-7.53%), Micron Tech. (MU) (+7.47%), and Research In Motion (RIMM) (+6.97%). The weakest were Sandisk (SNDK) (-3.31%), Vertex Pharmaceuticals (VRTX) (-2.95%), and Microchip Tech. (MCHP) (-2.38%).

Outlook After seeing unemployment drop in Germany, the U.S. is looking for its own improvement on the employment front this week (although Germany’s levels are currently akin to a pipe dream in the U.S.). The U.S. reports its December’s unemployment and nonfarm payrolls report on Friday A number of large retailers will be also be reporting their December sales this week. Those to watch on Thursday include Costco Wholesale (COST), Macy’s (M), Nordstrom (JWN), and Target (TGT). Although the market managed to hold onto Tueday’s gap fairly well throughout that session, the morning turnaround brought with it a return of a bearish intraday bias. This put some pressure on the markets in the afternoon after a strong morning selloff into mid-day.

The afternoon rally was slower than the morning descent, which allowed selling to return sharply into the close. Although the extent of the moves was minor, the pace was not. The bearish bias continued afterhours with congestion at lows and gave way to further selling in premarket trade.

Overall the market is favoring a continuation of the trend channel from the second half of December as this week progresses, but maintaining the uptrend will become more difficult in the days ahead. Prior daily highs and a slower overall uptrend compared to the early-December selloff will increase the risk of a stronger daily downside flush compared to the upside momentum once the uptrend channel breaks.

ECONOMIC REPORTS AND EVENTS THIS WEEK

Jan 3 10:00 AM ISM Index Dec Jan 3 10:00 AM Construction Spending Nov Jan 3 2:00 PM FOMC Minutes 12/13 Jan 4 7:00 AM MBA Mortgage Index 12/31 Jan 4 10:00 AM Factory Orders Nov Jan 4 2:00 PM Auto Sales Dec Jan 4 2:00 PM Truck Sales Dec Jan 5 7:30 AM Challenger Job Cuts Dec Jan 5 8:15 AM ADP Employment Change Dec Jan 5 8:30 AM Initial Claims 12/31 Jan 5 8:30 AM Continuing Claims 12/24 Jan 5 10:00 AM ISM Services Dec Jan 5 11:00 AM Crude Inventories 12/31 Jan 6 8:30 AM Nonfarm Payrolls Dec Jan 6 8:30 AM Nonfarm Private Payrolls Dec Jan 6 8:30 AM Unemployment Rate Dec Jan 6 8:30 AM Hourly Earnings Dec Jan 6 8:30 AM Average Workweek Dec International: Eastern Time Zone (GMT -4:00) (New York, Toronto) Jan 2 EUR German Retail Sales (NOV) (NOV) Jan 2 03:55 EUR German Purchasing Manager Index Manufacturing (DEC F) (DEC F) Jan 2 04:00 EUR Euro-Zone Purchasing Manager Index Manufacturing (DEC F) (DEC F)Jan 2 17:30 AUD AiG Performance of Manufacturing Index (DEC) (DEC) Jan 2 20:00 CNY China Non-manufacturing PMI (DEC) Jan 3 03:30 CHF SVME-Purchasing Managers Index (DEC) (DEC) Jan 3 03:55 EUR German Unemployment Change (DEC) (DEC)*** Jan 3 03:55 EUR German Unemployment Rate s.a. (DEC) (DEC) Jan 3 04:30 GBP Purchasing Manager Index Manufacturing (DEC) (DEC) Jan 3 10:00 USD Construction Spending (NOV) (NOV) Jan 3 10:00 USD ISM Manufacturing (DEC) (DEC)*** Jan 3 10:00 USD ISM Prices Paid (DEC) (DEC) Jan 3 14:00 USD Fed Releases Minutes From Dec. 13 FOMC Meeting*** Jan 4 03:55 EUR German Purchasing Manager Index Services (DEC F) (DEC F) Jan 4 04:00 EUR Euro-Zone Purchasing Manager Index Composite (DEC F) (DEC F) Jan 4 04:00 EUR Euro-Zone Purchasing Manager Index Services (DEC F) (DEC F) Jan 4 04:30 GBP Purchasing Manager Index Construction (DEC) (DEC) Jan 4 04:30 GBP Net Consumer Credit (NOV) (NOV) Jan 4 04:30 GBP Net Lending Sec. on Dwellings (NOV) (NOV) Jan 4 04:30 GBP Mortgage Approvals (NOV) (NOV) Jan 4 05:00 EUR Euro-Zone Consumer Price Index Estimate (DEC) (DEC) Jan 4 10:00 USD Factory Orders (NOV) (NOV) Jan 4 17:30 AUD AiG Performance of Service Index (DEC) (DEC) Jan 4 19:00 AUD HIA New Home Sales (NOV) (NOV) Jan 4 19:30 AUD Trade Balance (Australian dollar) (NOV) (NOV) Jan 5 04:30 GBP Purchasing Manager Index Services (DEC) (DEC) Jan 5 05:00 EUR Euro-Zone Industrial New Orders s.a. (OCT) (OCT) Jan 5 05:00 EUR Euro-Zone Producer Price Index (NOV) (NOV) Jan 5 08:15 USD ADP Employment Change (DEC) (DEC) Jan 5 10:00 CAD Ivey Purchasing Managers Index s.a. (DEC) Jan 5 10:00 USD ISM Non-Manufacturing Composite (DEC) (DEC) Jan 5 17:30 AUD AiG Performance of Construction Index (DEC) (DEC) Jan 6 USD ICSC Chain Store Sales (DEC) Jan 6 03:15 CHF Consumer Price Index (DEC) (DEC) Jan 6 03:15 CHF CPI – EU Harmonised (DEC) Jan 6 05:00 EUR Euro-Zone Business Climate Indicator (DEC) (DEC) Jan 6 05:00 EUR Euro-Zone Consumer Confidence (DEC F) (DEC F) Jan 6 05:00 EUR Euro-Zone Retail Sales (NOV) (NOV)*** Jan 6 05:00 EUR Euro-Zone Unemployment Rate (NOV) (NOV) Jan 6 06:00 EUR German Factory Orders s.a. (NOV) (NOV) Jan 6 07:00 CAD Unemployment Rate (DEC) (DEC)*** Jan 6 07:00 CAD Net Change in Employment (DEC) (DEC)*** Jan 6 07:00 CAD Full Time Employment Change (DEC) Jan 6 07:00 CAD Part Time Employment Change (DEC) Jan 6 07:00 CAD Participation Rate (DEC) Jan 6 08:30 USD Change in Non-farm Payrolls (DEC) (DEC)*** Jan 6 08:30 USD Change in Private Payrolls (DEC) Jan 6 08:30 USD Change in Manufacturing Payrolls (DEC) (DEC) Jan 6 08:30 USD Unemployment Rate (DEC) (DEC)*** Jan 6 08:30 USD Avg Hourly Earning YOY All Emp (DEC) *** Highly influential Notice: The Bastiat Group, Inc. has attempted to verify the information contained in this calendar, however, any aspect of such info may change without notice. Foreign economic reports included in this list are only those deemed “medium to high impact”.

KEY EARNINGS ANNOUNCEMENTS THIS WEEK

Monday, Jan 2, 2012 Before: – During: – After: – Tuesday, Jan 3, 2012 Before: – During: – After: LNDC, PRGS, TISI Wednesday, Jan 4, 2012 Before: UNF During: – After: MOS, RECN, SONC, TXI Thursday, Jan 5, 2012 Before: STZ, HELE, MON During: – After: SHLM, APOL, GPN, RT, SABA, XRTX Friday, Jan 6, 2012 Before: CMC, IHS During: – After: –

Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled.

DISCLAIMER

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