Sunday, December 5, 2010

The Week Ahead

Similar to many episodes the past 1.75 years, when the market looked threatened mid week to break some key technical resistance - in this case the 50 day moving average on the S&P 500 - buyers rushed in to offset a deteriorating technical condition and helping the market get it's groove back.  So happened Wednesday as the "First day of the Month Effect" [More First Day of the Month Effects] bore fruit yet again.

Both the S&P 500 and NASDAQ look identical, poised to test yearly highs.  While the sharp U-turn has probably pushed both overbought in the very near term, a potential 'head and shoulders' formation that seemed to be forming over the past 2 weeks appears headed for oblivion.

Please note small caps have already broken to new yearly highs...

With all the heavy economic reports out of the way for the month (Chinese PMI, US labor, US PMIs) and the David Tepper effect back on the table as demonstrated Friday (bad news = more Fed or govt support, good news = good news) there is little to stop Santa.  A dip is to be expected in relatively short order but desperate performance chasers will certainly be chasing that dip, afraid of being left out of the upteempth "V-shape" recover bounce; something we rarely saw pre 2009, but has now become the standard.  The only question at this point is the breakout over yearly highs (S&P 1227 for example) be something to chase immediately, or a short term head fake to cause a little pain for stock market elves...before the year end rally.

Performance Chasing 101

On the docket this week are less imposing economic reports; certainly not the type that move markets.  The only kryptonite for Santa would be some news out of Europe but with the entire globe now backstopped by central bank actions, speculators are content with all actions that kick the can as we cycle from country to country.  It appears until German and French spreads themselves blow out, will anyone truly care about Europe as a serious issue - and then I suppose the Ben Bernank (sic) option will come full bore; that is the ECB printing money like mad to funnel into every crevice of Europe.  Until then we watch Portugal... then Spain... then Italy... then Belgium..

Tuesday: Consumer Credit (3 PM)
Thursday: Weekly jobless claims (8:30 AM), Wholesale Trade (10 AM)
Friday:  International Trade (8:30 AM), Import and Export Prices (8:30 AM), Consumer Sentiment (9:55 AM)

On the monetary front, as we debate (sort of...but not really) some sort of long term deficit reduction plan, politicos prepare to unleash another $4 TRILLION of debt over the next decade via extension of Bush tax cuts.  Which purposely were supposed to sunset after a decade.   However we know once a policy is implemented that either hands out money (Dems) or gives tax cuts (GOP) - we will never take it back.  This is the benefit of being the blessed nation which can increase spending AND cut taxes at the same time.  Granted we do not want to raise taxes in a poor improving economy, but you can imagine if the economy was booming the GOP would switch to rationale of "we can not raise taxes because it would choke off growth".  Hence, consider our tax cuts permanent for forever (and ever).   So take your 2010 deficit commission and shove it.... we're about to add $4T for the NEXT deficit commission to deal with.

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