10:25pm (EST)
MomentumOptionsTrading.com Weekly Wrap for 12/27/09
The market managed to close at new highs for the year Thursday although the climb has been slow and steady for weeks. The bulls have been in control since March and we have been bullish all month, partly because we feel investors are still sitting on gains and may hold onto stock in the hopes of recouping more 2008 losses.
Last week we reiterated our short-term targets for the market which were 10,800 for the Dow; 2,275 on the Nasdaq and 1,175 for the S&P 500. The Dow closed at 10,520; the Nasdaq settled at 2,285 while the S&P 500 closed at 1,126 on Thursday. Obviously, Tech has led us higher but we still feel like the Dow and S&P 500 will catch up over the next two weeks and come close to our year-end targets we set in AUGUST.
Selling losing stocks for tax purposes can weigh on the market at year-end but we think the rally continues this week and next. It has been easier to hold stocks over the weekend but there are still geopolitical events happening that we need to keep an eye on. However, it seems the market has done well on Friday’s followed by steady Monday’s which leads us to believe the bulls are still hanging around and running the show.
The $900 billion Healthcare Bill seems to be getting some clarity and that could be a relief for the market as well. The bill requires most of us to have health insurance or pay a penalty and forces most employers to offer coverage. However, it does not contain the government-run health plan program that most Democrats are pushing for which is included in the House version of the legislation, and opposed by most Republicans. The two sides will try to work out a compromise when 2010 begins.
We mentioned volume has been light as many traders take off for the week between Christmas holiday and New Year’s and there are no company earning reports worth mentioning this week. This means economic data could provide some volatility as the market looks for clues heading into January.
Among the week’s few economic releases, here is what we are looking at:
Tuesday: Redbook released at 8:55am; S&P Case-Shiller HPI due out at 9am and the Consumer Confidence report will be in 10am. Also, the State Street Investor Confidence Index news comes out at 10am.
Wednesday: MBA purchase applications released at 7am while the Chicago PMI comes out at 9:45am.
Thursday: Jobless claims at 8:30am.
We got a deeper-than-expected drop in initial jobless claims last Thursday which helped the market move higher so this and Tuesday’s Consumer Confidence report will be the two biggies this week.
We also mentioned last week that January could get interesting as earnings season gets underway. Wall Street is expecting a big improvement in fourth-quarter results compared to the last quarter of 2008.
Analysts will be looking for increased revenues instead of cost-cutting to show an improving economy and if they don’t come though then the market could be headed south. Revenues are expected to gain 7%, marking the first quarter of revenue growth since the third quarter of 2008. We shall see…
Here is the thing folks, if corporate earnings for the fourth quarter come in better-than-expected then we could be adjusting our targets for the market much higher. As you can see, the first few weeks is setting up to give us some great clues on market direction.
If you can get market direction right then you stand a pretty good chance of making money with options and we have done well over the past few weeks playing the “Santa” rally. Let’s hope it continues a few more days and weeks.
We will be back in the morning with the trade updates and a fresh outlook.