Courtesy of Scott Martindale, Sabrient Systems and Gradient Analytics
Bulls are trying mightily to ensure the Santa rally holds into year-end and close the year in the positive, as all eyes remain on Europe. Although the European Central Bank (ECB) has refused to enact a U.S.-style “quantitative easing” by aggressively buying bonds to keep rates down, it has instead come through with an alternative solution–a bigger than expected refinancing operation in which it offers $645 billion in 3-year loans at 1% interest to struggling European banks. The hope is that the banks will reinvest in higher yielding bonds of the struggling euro-zone countries (i.e., “carry trade”). Such demand would keep rates on the sovereign debt manageable.
But it remains to be seen if the carry trade actually will occur. After all, these are not “risk-free” bonds as U.S. Treasuries are assumed to be. So far, European stocks have remained near their lows.
Here in the U.S., however, stocks have been trying to rally. On its sixth attempt since late-October, the S&P 500 on Friday finally made a bullish breakout above the tough resistance of its important 200-day simple moving average. The market appeared ready to rock & roll through year-end and into early-January. However, Wednesday brought hesitation, and the bears took the opportunity to push the S&P 500 back below the 200DMA.
Now the S&P 500 is struggling to finish the year in the positive. As of Wednesday’s close, it was just below 1250 after closing 2010 at 1258. It has two trading days left to get it done.
Among the ten U.S. sector iShares, the past few days have been a microcosm of the entire year, with Utilities (IDU) the strongest and Basic Materials (IYM) the weakest. For the year, IDU is up nearly +15%, followed by Healthcare (IYH), while IYM is down about -18%, followed closely by Financial (IYF).
Now let’s look at the charts. The SPY closed Wednesday at 124.83, which is virtually the same level as last Wednesday. Referring back to the symmetrical triangle formation on the chart, we can see that support held at the convergence of the lower support line of the triangle and the 100-day simple moving average, and then this week resistance held at the convergence of the upper resistance line of the triangle and the 200-day simple moving average–leaving price back inside
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