Pre-market futures got a lift when Abu Dhabi announced its $10billion bailout for Dubai World. The bailout set the tone for much of the morning’s session as stocks were able to find bids as well as volume. It was important for the market to find volume and not too mention clearing important closing high levels. Small cap stocks were the winners on the day easily outperforming the majors as the Russell 2,000 closed on its high of the day. Leading stocks were big winners as the Dow Jones Industrial Averages limped into the close. Volume was greater than Friday’s session, but still lower than the 50 day volume average. Today was a good day, we now need to see this action continue.
The market continues to defy odds especially small caps and the NASDAQ. Many were calling for a head and shoulders top, we even saw it too. But, the key is to let the individual stocks dictate your moves and until the market actually completes a topping formation everything else is irrelevant. Even the rising wedge formation on the S&P 500 is simply a formation and should not slant your view until the pattern completes itself. One should be well aware of what is going on in the market, but to anticipate without confirmation is a dangerous game to play. We may very well roll over here, but until we actually see the action confirm our thoughts we will continue moving up with this trend. The uptrend remains and although it may be long in the tooth it is still here.
Breadth is beginning to look promising once again and is a good sign for the market. We may very well move like we did at the end of 2003 with a strong move to new highs then roll over. One thing we do need is strong breadth and new highs. The McClellan Oscillator is a nice tool to see breadth in the market.
We certainly have the necessary stocks setting up and breaking out for this trend to continue. Santa may come early this year.
Inflation is due out the next few mornings which may shake up trading a bit. Producers Price Index is out tomorrow with the Consumer Price Index out Wednesday. More than likely these will show inflation is in “check.” Regardless if you think these numbers are bogus the general market will react to it. Do not get caught up with the emotional buying/selling with those who trade off this number. Stay disciplined.
The Federal Reserve is due out with its rate decision Wednesday as well. Many traders will be looking to the PPI and CPI has indications on whether or not the Federal Reserve will look to raise its benchmark rate. Bottom line, the price and volume action will dictate our strategy. Speculation on where stocks will go before/after the rate decision will only have your head spinning. Many believe they will stay put and coast into the new year (how nice of them).
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