“Our timing for the market to hit new highs was off by 2 weeks but our homework over Christmas break and at the beginning of the year paid off. We had a good feeling Santa and the bulls would be coming to town and why we continued recommending call options for the Daily. The 4% rally we talked about from early December is nearly complete and now is where it gets interesting.
It has been nice to talk about earnings and market news without mentioning the zombies and we did that on purpose to give you and ourselves a break. Although the government was “working” and announced new candidates to fill more meaningless jobs with fat salaries and lifetime benefits, the focus of the Debt Threat is not going to go away. The pot shots in the press and back-and-forth bickering will continue but we are expecting the market to ignore the headlines until the start of February which is nearly 3 weeks away.
Right now, and over the next few weeks, earnings will take center stage but it doesn’t mean things will be smooth. We aren’t worried about “earnings per share” or if companies match, miss, or beat expectations. We are more concerned on revenues and outlook. We mentioned in our video last Sunday night it would be important for the Financial stocks to show some strength and this week will be their test.
The Financial Select Spiders (XLF, $17.11, down $0.04) managed to hit a 52-week high of $17.17 last week and we said back in December there was a chance they trade to $18-$20. We still believe there is upside potential but the Financial companies will need to post good numbers this week. If not, a back test to $16.40 could be in the mix.
Our thoughts and chart work from the December 16, 2012 Weekly Wrap:
“The Financial stocks made a push past resistance to start the week and traded above the $16.20 level. A push past $16.40 would indicate a breakout while a dip below $15.80 would be the start of a possible new trend lower. The bulls will need the Financial stocks to pull their weight, along with Tech, if the indexes are going to make a run at the 52-week highs.” (END):
We also talked about the Dow Transports ($TRAN, 5,572, up 38) and how they would need to reach fresh 52-week peaks:
Here is the chart and our thoughts just before Christmas:
“One sector we haven’t mentioned in a few weeks is the Transports as they are also showing strength. The Dow Jones Transportation Index closed at 5,340 (down 17) on Friday after trading up to 5,372 midweek. The 52-week high is 5,424 and is just over 1% away. If the bulls can clear this level, the market should be challenging 52-week highs. The 2-year chart below show a run to 5,600 could be in the cards. If there is a failed test at the first level of resistance (5,400) and no Fiscal Cliff deal, these two negative headlines will be more than enough for the bears to stay on the attack.” (END):
The First Five Days of January were also bullish and is usually a good omen for the month and year. The Dow ended 2012 at 13,104 and closed at 13,328 last Wednesday for a gain of 224 points, or 1.7%. The S&P was at 1,426 and closed at 1,457 for a 31 point gain, or 2.2%. The Nasdaq jumped from 3,019 to 3,091 and added 72 points, or 2.4% while the Russell 2000 advanced from 849 to 871, for a pop of 22 points, or 2.5%.
When the First Five Days are positive, the market has finished the year higher by nearly a 14% clip, on average, over the past 40 years. The gains can be even staggering during post-election years as some periods have seen the market move 20% higher. It would be nice if the road is paved that smoothly but at some point a pullback will have to be factored in.
There has been a lot of chatter about a market pullback due to the concerns over the Debt Threat that will likely hit us in mid-February. The U.S. is $16.4 trillion in debt and is expected to reach its ceiling by Valentine’s Day. For those of you who haven’t seen the U.S. Debt Clock, click here, or go here:
We suggest all Americans put this on their desktop and tweet it to the White House or send a zombie a letter. The more pressure we put on them and expose their “evil-doings” the better chance we might have of actually reducing the debt. Of course, if you believe Monopoly money is real, wait until you get a load of this one.
The U.S. Treasury could be on the verge of producing a Trillion Dollar Coin(s) if the zombies fail to extend the U.S. debt limit, or pay off its bills. The coins would be “deposited” into the Federal Reserve and the government would then have “cash” to pay off its bills. There are laws on how much circulated gold, silver, copper and paper dollars the zombies can use as currency but there is no restrictions when it comes to platinum.
This January has felt much like last January as we remember buying call options when the slick talking pros said to buy put options to protect yourself from the pending correction. Well, the pullback didn’t come until May and by then every fund manager on Wall Street was behind the curve. So far for 2013, same deal and why they have been clamoring for a pullback or correction for that matter.
We continue to believe January will be bullish and the “fluff” targets we gave you back in early December are rapidly approaching: Dow 13,777; S&P (500) 1,492; Nasdaq 3,150; Russell (2000) 885. Once they are cleared, there could be some extra fluff but this is where we may need to start preparing for a pullback.
The charts from last week and this week show more room for the bulls to run and statistically, February is a lousy month for the market. The market will eventually have to deal with the Debt Threat, the $1 trillion “sequestration” cuts from defense and discretionary spending, and the $2.5 trillion congressional budget cliff that looms and those headlines will heat up in February.
For now, earnings are in focus and the bulls are in control. The market is acting like it will worry about the bear later this month or at the beginning of February as the zombies get ready for battle. Money is starting to move to the market from the sidelines as equity funds took in over $18 billion last week, the fourth largest since 1992. ETF (exchange-traded funds) were $10.8 billion while mutual funds took in $7.5 billion. Usually, investors on the sidelines rush in at market tops only to be disappointed weeks or months later. It will be interesting to see how things play out.” (from 1/13/2013 Weekly Wrap Update)…
The bears were around on Friday as they tried to make a stand but some midday news on the Debt Ceiling helped the indexes reverse course as the market finished higher to end another sweet week.
The market moved higher for the third-straight week as the bulls cracked another layer of resistance and pushed fresh highs. Some of the fluff targets we gave you from mid-December still haven’t triggered and we provided you with some additional upside targets from last week’s charts should these levels hold and there is further upside. (read more…)
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