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A number of markets managed to climb above their 50 day moving averages last week and that would seem to leave the markets in a somewhat positive posture. Apparently investors and analysts are upbeat toward the prospects in the New Year, but that view continues to conflict with many economists who in general think that a recovery in the economy won’t be forth coming in the 1st half of the year. In fact, some economists think that the recovery won’t take hold until after the 3rd quarter and therefore the markets over the last month have been banking on the economists being wrong in their timing of the recovery. While we suspect that the market will be disappointed with the upcoming monthly Non farm payroll report readings, the fear of that report that doesn’t look to hold the market back from forging more near term gains early in the week. Surprisingly we saw evidence of severe slowing in US and international manufacturing readings last week, but yet the markets overnight (particularly in China) decided to push up commodity and raw material stocks! In fact, the market will see some US auto sales figures and Construction Spending data today but after a minor setback off those figures, we suspect that the bulls will once regain control. Apparently the market is looking ahead to the latest promise of a large US government stimulus plan being passed in early February as promised by Congressional leaders over the weekend. It also appears that expectations for the incoming Administration are also adding to the favorable spin on the economy.
DOW: It is difficult to argue against a market that has forged an extended pattern of higher highs for the move on the charts. It is also hard to argue against a market that has recently climbed above its 50 day moving average and seems to have entrenched above the last month’s consolidation highs. Near term critical support in the March Mini Dow contract is seen at 9,185 and while the scheduled data flow today might temporarily dent sentiment, we suspect that increased talk of the next US stimulus plan will be able to divert attention away from the sagging economy.
NASDAQ: Late last week the March Nasdaq did manage a fairly impressive range up extension (above the last month’s consolidation highs) but in the early action today prices have fallen back to critical support at 1250. With predictions of further weakness in Chip sector sales recently floated by the press and the market seemingly favoring physical sector plays like raw materials and commodity stocks, we suspect that the Nasdaq will continue to lag behind the rest of the market on any near term extension on the upside. In fact, we suspect that the Nasaq will eventually be the index that sees the biggest negative impact from the Friday morning unemployment readings.
S&P 500: Critical pivot point support in the March S&P is seen down at 918.50 early this week and while we can’t rule out temporary weakness later this week, it would appear that the bull camp generally retains the upper hand in the market. However, we suspect that market will see post economic report setbacks as an opportunity to get long at cheaper price levels. The trend is up but we won’t be making any long recommendations, as stock prices still appear to be diverging sharply with economic reality! It could take a close below 900 in the March S&P to effectively take away the bull’s residual edge from the prior week.
