While many are still enjoying extended holiday breaks, or are busy cashing in those ubiquitous gift cards, Wall Street has been gently pushing stocks higher. And higher. And higher. Enough to push the S&P 500 back over its 200-day moving average, the line of demarcation between bull and bear phases in the market, for the first time since last October.
Catalysts for the move have been a relative calming of the eurozone debt crisis (though it's changing for the worse again with Italian borrowing costs surging back over 7%) and some better-than-expected economic data here at home. Plus, stocks just tend to do well during the final few weeks of the year. Chalk it up to holiday cheer.
The question is: Can the positive momentum last and keep stocks out of bear market territory?
Setting aside discussions of the economy (which has largely been kept out of the ditch by consumers drawing down savings, an unsustainable trend), from a technical market perspective, I don't think it can.
Here's why: Breadth is narrowing substantially as the bulls focus on fewer and fewer stocks, and those stocks are defensive, non-cyclicals that tend outperform in the final moments before the most harrowing moments of a new bear market.
Specifics. Take today's sideways crawl. Despite all the major averages spending the day in the green, there were only 97 net advancing issues on the NYSE as the closing bell loomed. That's down nearly 92% from Friday's finish and down from more than 2,300 net advancing issues on Dec. 20. That's a sign that higher prices aren't encouraging a buying frenzy; it's drawing out supply as sellers use higher prices to cut risky positions.
That's bear market behavior.
Moreover, those that are buying are focusing on healthcare, utility, telecom, and consumer staples stocks while shunning industrials, technology, emerging market, and materials stocks. This isn't the strategy you follow if you see brighter days ahead for the global economy; it's a strategy you follow if you are searching for dividends, stability, and safety in an increasingly volatile and uncertain environment.
This is also bear market behavior.
The chart above shows that when the Consumer Staples SPDR ETF (XLP), which includes stocks like Wal-Mart (WMT) and Colgate-Palmolive (CL), outpaces the overall market, it tends to be a short-lived affair. You can see this in the chart above, which shows how the XLP marched to a new high in mid-2008 just weeks before Lehman failed, the financial crisis raged, and stocks plunged.
If cyclical stocks can retake the reins, and the S&P 500 can extend beyond the 200-day average on expanding breadth, then I'll eat my words and join the chorus of the optimists. But until then, I continue to recommend investors use this rebound as one last selling opportunity ahead of what's shaping up to be a dark and troubled new year.
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My New Years resolution would be to go open season on all of those market manipulators that still think of the economy and legitimate investors as one big money tree waiting to be plucked. Too bad for them they sucked off all the leaves, so all that's left are the branches and twigs.
It would be cool if someone came up with a deck of cards like they did for the top Al Qaeda terrorists. Pick out 52 of the greediest CEOs, hedge fund managers, and investment bankers that pawned all of those derivatives that contributed to the housing bubble, or otherwise committed acts of economic treason that put us where we are now. We should treat these financial miscreants like terrorists, and track them down like the dogs they are.
Now let's be clear on this, there are plenty of respectable captains of industry out there who are making lasting contributions to the economic growth of our country. We need to continue supporting a positive business climate. Unfortunately, the bad guys by and large haven't been held accountable, and that's the real tragedy in all of this.
For every con that got caught illegally bilking billions from the markets, or who evaded taxes with clever stock option futures, or sheltered overseas accounts, there are probably 10 that are still laughing all of the way to the bank.
It's time for the SEC, FED, FBI, DOJ, IRS, and all their rowdy friends to make the outlaws pay up. The politicians won't do it, because they would be putting the hands that feed them behind bars, and then where would all of the campaign contributions come from?
If government doesn't clean house, then it's up to the American people to seek justice. We need to restore the confidence and trust in our free market system before we're all living in caves again. Keep fighting America!
Most American companies are multinational and even though some barely break even in America, like Walmart, they make most of their profit overseas where people still have real spending power. America is a debtor nation of 14 to 20 trillion in debt and the Eurozone of barely $2 trillion in debt. Huge difference. 2013 to 2015 will be tough here because of very large cuts in federal government and military spending but eventually we will be solvent. While all of this recession has been going on here, my favorite company Disney has been buying companies and starting operations in foreign markets like Latin America, India and Russia. There is a global thirst for the American way of life and we will run out of oil before we run out of LOVE.
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[BRIEFING.COM] Stocks finished the little changed as a lack of news flow from Europe combined with mixed data in the U.S. wasn't enough to push the Dow to a fifth consecutive day of gains. However, today’s fractional gain in the S&P 500 was enough to boost the index to its fifth winning session in a row. Data showed the Consumer Confidence Index for December rose to 64.5 from 56.0 in the prior month. It had been expected to improve to just 58.0. The Case-Shiller ... More
A cute end-of-year rally has pushed stocks back over a critical level separating bull and bear markets. Can it last?
Oil moves higher as Iran threatens again to block the Strait of Hormuz. Sears shares fall 27% on news it will close 100 to 120 stores because of poor sales. Consumer confidence rises. Stocks are ending 2011 about flat.
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