Selected Analysis and Commentary
Breakout possible
Tuesday, December 15, 2009
The Dow was up another 29 points on Friday and closed above 10,500, which is bullish behavior. The Dow Transports and Utilities, along with the Russell 2000 and the Nasdaq 100 all made yearly highs. The S&P is trailing due to weakness in the financial sector.
Index futures are down this morning due to weakness in Asia. The fact that Wells Fargo is going to sell equity to pay back $25 billion in TARP loans and was upgraded by Deutsche Bank is not enough to start the day out in the green. Nevertheless, be prepared for a surprise rally today from lower levels.
According to data from Investors Intelligence, the most newsletter writers in 17 years are predicting a correction in U.S. stocks. Anecdotally, we sense a great deal of anxiety about a sudden pullback such as we have had several times over the last month. As we mentioned yesterday, the more anxiety about a correction, the less likely it is to happen.
This is a liquidity driven rally, which means it is less susceptible to news on the economic front, but highly dependent on the Fed. The FOMC will be meeting today and will offer a message to the markets tomorrow at 12:15 ET. Unlike Greenspan before him, Bernanke is a transparent Chairman. It is highly unlikely that he will disappoint the Street.
Meanwhile, sales of Mercedes Benz vehicles are up about 60% in China year over year, including Hong Kong. Sales are up 80% in Brazil, however, and 25% in India. One could chart the health of the domestic Emerging Market economies month to month with this data. By the way, sales advanced just 3% in Russia. We think the Russian ETF (RSX) will be an attractive short sale some day.
MARKET CALLS
The Dow is at weekly resistance, but does not appear to be weakening. If the index manages a breakout, it could rally 1000 points rather quickly.
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