Market Comment - January 11

(Marco Bonelli) Lots of headlines but nothing bad happened while market participants try to position themselves ahead of earnings...

Investors receive a lot of news from various industry conferences these days and companies issue some last-minute statements to guide investors what may come up when Q4 earnings and the Q1 outlook get presented (i.e. MSFT and TSM talking about weaker December sales, also comments from various retailers, HL cutting 2012 silver production). Any kind of reaction seen is usually more stock-specific as a more broad-based effect can be expected once the actual earnings reports come in.


Same in Europe, negative GDP growth for Q4 in Germany and disappointing industrial output in Spain gets offset by favorable comments from Angela Merkel. However, bond yields drop ahead of various bond auctions and the Euro drops again below 1.27 versus the Dollar.

As a result of the stronger Greenback, commodities drop and give up some of yesterday's gains on back of comments regarding a more positive outlook for this year and hopes for stronger growth in China (some analysts pointed out that copper and aluminum volumes were still strong despite weaker imports overall in December).

Bottom-line lots of noise but not a lot of action, an environment where usually charts deliver a clearer picture where the market stands:
The major indexes made another step towards clearing a few critical resistance levels as the Russell 2000 and S&P400 Midcap Index slightly crossed the 200day MA and the Value Line Index closed above the critical 340 mark. I continue to see the neckline of the massive head-and-shoulder formation from 1H11 as a highly critical and also symbolic level. The SPX already broke this line (1278) a few days ago and yesterday, the Dow Jones and the Russell 2000 also moved up the related level (12500 and 765.50, respectively) but didn't have the strength to close above it. The SPX, Nasdaq Composite and Russell 2000 broke out of their range from last week and the Dow Jones Transportation Index even made a new 5 ½ month high (and is only 8.5% away from a new all-time-high); with that, the chart picture continued to improve and all indexes made further progress in leaving the cruel developments from 2H11 behind.

Given the fact that many of the major averages trade at or close to important chart levels, another day of consolidation is possible (similar to how the market already traded end of last week), waiting for the earnings season to get into full gear and more economic and corporate data become available but the strategy to hold positions into the earnings season and accumulate into any weakness still appears to be favorable.

Trade well.


(Marco Bonelli is the Managing Director of International for CL King & Associates in New York. The opinions expressed are his own)