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Sunday, December 20, 2009

A tiresome sidewise market - can tech lead it higher?

Stocks gyrated this week in response to the release of the latest FOMC policy statement and developments in Greece including the corresponding downgrade of Greek government bonds. Economic reports were mixed. The Producer Price Index (PPI) rose more than expected in November and that was looked on as negative inflationary news. The higher prices, however, weren't reflected in the Consumer Price Index (CPI) which was in line and implies price increases were not being passed on to consumers like you and me. Industrial Production beat expectations and Initial Jobless Claims rose for a second straight week while the moving average declined.

All in all, economic fundamentals were OK this week and how important is Greece, anyway? Yet stocks didn't do much. except for tech stocks and small-caps that did actually manage to show gains this week. So how are things doing from a technical analysis point of view?

The view from Alert HQ --

Charts of some of the statistics we track at Alert HQ are presented below:

This first chart presents our moving average analysis.The number of stocks above the 50-day moving average again declined a tiny bit while the number of stocks whose 20-day MA is above the 50-day MA increased a little. This has happened two weeks in a row so far but the changes have been so small as to almost be meaningless.And, not surprisingly, the market has more or less moved sideways.

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.

Here we also see the effects of a sideways market. The number of stocks in strong up-trends has barely budged and neither has the number of stocks in strong down-trends.

Conclusion --

As we said last week, what little change in markets we have seen has been slightly bearish.On the other hand, the inability of the bears to make much headway I take to be a positive. It is clear from the charts above that stocks are not over-bought so there is plenty of room for stocks to rally.

The first of two holiday shortened weeks is upon us. With many traders on vacation, volume will likely be thin and stocks volatile.

Holidays or not, there will actually be few reasonably important economic reports this week including  the final revision to Q3 GDP, existing home sales, new home sales, personal income, personal spending, University of Michigan Consumer Sentiment Index, the usual weekly initial jobless claims and the Durable Goods report.

It seems like earnings season just ended but some earnings reports started to trickle out. last week. Tech stocks were the center of attention with Research in Motion (RIMM) and Oracle (ORCL) reporting better than expected results. This week, tech will again be in the spotlight with Jabil Circuit, Progress Software, Micron Technology, Red Hat, TIBCO and 3Com reporting. So for those of you who, like me, tend to focus on the tech sector, this week will provide a small preview of what's to come as 4th quarter earnings season plays out.

This seems like a good time for sector leadership to rotate. Healthcare, consumer staples and utilities have been leaders lately. These are typically not the sectors that lead significant rallies. With imminent passage of healthcare reform, it's not unlikely that this will slow down healthcare stocks. And with tech stocks grabbing investor attention this week, we could get a positive reaction if they turn in some good results.

After all, aren't we all tired of this sidewise market?

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