Daily State of the Markets 
Thursday Morning – December 30, 2010  

Publishing Note: In an effort to recharge the batteries for the upcoming change in the calendar, we will not publish a “Daily State” report on Friday and Monday unless conditions warrant. Regular reports will return Tuesday morning.

Good morning. At this point in the year, it is safe to say that the vast majority of managers (me included) are simply waiting for the calendar to change so that we can hit the reset button and begin the game anew in 2011. And with the majority of the global markets closed tomorrow, the market may be in a rather vulnerable position from a short-term perspective.

We’ve been suggesting for some time now that the market has reached a very overbought condition and that sentiment measures are now at extreme levels. As such, logic would seem to dictate that a pullback of some form would be in order. But given that we’ve only seen something on the order of three down days during the entire month of December, logic has clearly been defied lately as each and every dip has been used as an opportunity to put capital to work in the stock market.

The bulls continue to argue that ’tis the season for window dressing and marking up your favorite positions, that the fundamentals continue to favor stocks for the upcoming year, that the great Goldman Sachs has decreed a gain of +20% for next year, that valuations are low, that the economy will improve, yada, yada, yada. And as such, we should probably expect the current environment – where sideways is the new down – to simply continue ad infinitum.

However, there are only a handful of certainties in this business and one is that the very moment everyone in the game becomes convinced that stocks are simply going to continue to march uninterrupted in one direction or the other, Ms. Market tends to come along and make people look foolish.

So, given the extended nature of the market (stocks are up 17/20 days and this is currently the best December since 1991) and the likelihood that the buyers might be inclined to take a break at some point, we would not be at all surprised to see the bears make a comeback in the near future. Thus, it would be logical to see more of the type of action seen into Wednesday’s close, where the sell programs do their thing and the buyers stand aside.

However, this does not mean that I’ve donned the bear costume. No, the current trend is a thing of beauty and should be respected. However a couple days of selling here and there, if for no other reason that to to even out the game just a little, certainly isn’t out of the realm of possibility here.

So as we wait to hit the reset button, it is probably a good idea to avoid the urge to continue guzzling the bull camp’s Kool Aid – well, for a little while anyway. After all, you do need a dip in order to play the dip-buying game!

Turning to this morning… Things are once again very quiet in the early going with global markets mixed and few catalysts for those traders still playing the game to work with.

On the economic front… The Labor Department reported that initial claims for unemployment insurance for the week ending December 25 fell by 34,000 to 388K. The week’s total was well below the consensus for a reading of 415K. Continuing Claims for unemployment for the week ending December 8 were above consensus at 4.128M vs. expectations for 4.053M and last week’s revised (higher) 4.071M.

We will also get reports on the Chicago PMI at 9:45 am eastern and then Pending Home Sales at 10:00.

Thought for the day: Here’s wishing every a very happy, healthy, and profitable New Year!

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell…

  • Major Foreign Markets:
    • Australia: +0.31%
    • Shanghai: +0.29%
    • Hong Kong: +0.13%
    • Japan: -1.12%
    • France: -0.96%
    • Germany: -1.39%
    • London: -0.33%

     

  • Crude Oil Futures: – $0.48 to $90.64
  • Gold: – $1.10 to $1412.40
  • Dollar: higher against the Yen and Pound, lower vs. Euro
  • 10-Year Bond Yield: Currently trading higher at 3.388%

     

  • Stocks Futures Ahead of Open in U.S. (relative to fair value): 
    • S&P 500: -0.38
    • Dow Jones Industrial Average: +2
    • NASDAQ Composite: -1

Wall Street Research Summary

Upgrades:

Public Service (PEG) – Estimates increased at Jefferies Macy’s (M) -Estimates increased at Soleil BTY International (BTUI) – Target increased at Wunderlich Coinstar (CSTR) – Named top pick in online content sector at Piper Jaffray Netflix (NFLX) – Named top pick in online content sector at Piper Jaffray Priceline (PCLN) – Named top pick in online content sector at Piper Jaffray UR Energy (URG) – Rodman & Renshaw raise uranium price forecast and mention co. positively

Downgrades:

Goldman Sachs (GS) – Estimates reduced at Credit Suisse Morgan Stanley (MS) – Estimates reduced at Credit Suisse

Long positions in stocks mentioned: None

 

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.

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