Looking for Direction
This is not likely to be the week for the market to find its footing. Investors spent last week rethinking the move higher and doubts crept in to take away the break above resistance. We look to start this week back above those breakout levels. Can we hang on and move higher? This is the million dollar question facing investors. With a holiday week we are not likely to get solid answer, but we could get some solid gains. Traditionally a light volume week to the upside, but not a trend setting week. As always we take what the market gives and make the necessary adjustments.
What’s bothering investors? The list is too long, but the primary issue from my view is the outlook for growth is coming under duress. The greatest challenge will be to earnings and in turn the price of stocks. We won’t get a clear picture until mid January and in the meantime we speculate on the results.
Gold is on the rise again and the driving factor currently is inflation concerns. The U.S. reported hotter than expected increase in prices at both the producer and consumer levels. Euro-Zone showed some inflation signs as well. Real or imagined the concern is stimulating the price of gold even higher. Stops are a must against the metal as the price continues to defy gravity.
The dollar is still in focus when it comes to market direction. The rise and fall of the dollar is setting the pace for U.S. equities for now. I have been looking for a push higher in the dollar based on the oversold technicals in the dollar index (DXY). It has been trading between 74.5 and 75.6 of late. Watch for some indication of direction short term. The dollar is creating inflation issues for the U.S. We are importing inflation as seen in the import prices rising nearly 5% last month. A weaker dollar obviously takes more to buy the same goods. This simple equation is going to impact GDP data as well as the consumer. Throw in higher oil prices and this could get ugly for the economic picture.
This is still a liquidity driven rally. The U.S. and world banks continue to provide excess liquidity in an attempt to stimulate the global economies. The result of this liquidity is stimulating stock prices. This begs the question, what happens when the stimulus is removed? Watch as this issue will become a main attraction in 2010.
Leadership is consolidating and in some cases looks promising technically. Base metals, retail, energy and commodities are still in play and they could resume their respective roles in the coming weeks. I continue to watch for the opportunities, but the risk level remains high.
The futures are up and the dollar is down. We could get a similar start to the week on the upside, but watch the volume as we push towards Wednesday. Play the market relative to your goals. Stay focused and disciplined. Entry, exit and target on every play.
Have a great day investing.
