Volatility is back and technical analysis is again a wasted effort.
Remember back in September and October when we alternated positive and negative 100+ point days? Well don't look now but we seemed locked in that pattern again. News, news, news. Which way is the wind blowing today? Thursday investors were running from stocks on Brazil and Asian worries and Friday those same worries were forgotten in the face of the strong jobs data. Did anything change between Thursday and Friday? Not one bit. Investor sentiment is becoming as unpredictable as AOL email.
If you take a longer term look with a historical perspective then December is playing right along with "normal" patterns. In 1996 and 1997 the market experienced a 6% correction in December which set the stage for significant runs in the following first quarter. The low on Thursday was -5% from the recent high and a good case could be made for optimism based on the past. I know, past performance does not guarantee future results, but with the bullish undertones in the market we do look primed to run into January/February earnings if the global news and pre-warnings don't bite us.
The market internals are mixed and we could still see movement in either direction. Financials showed some strength Friday and the Russell-2000 appears to be basing just under the 200 DMA and could breakout at any time. Market breadth is still negative and the major movers are the blue chips. This is exactly like the situation we had in October. Generals leading, troops lagging back.
At this time of the year with the recent strong market advance I think the most likely outcome is a trading range between 8800 and 9300. The close for the Dow back over 9000 and the Nasdaq a hair over 2000 is a good sign. We are at the weekly "key moment" in the market. Up or down could come just as easy. Transports are still lagging on cheap oil and we are getting closer to the year end portfolio adjustment period. The positive interest rate environment in Europe should keep their markets positive and some analysts think the bad news of Asia and Brazil is now factored into the U.S. market after the drop this week. Don't forget, first quarter earnings warning season is coming fast and several big names announcing negative outlooks could change the sentiment in a heartbeat. The bullish jobs report on Friday only provided a market that wants to go up with a short term reason. The Fed is most likely to hold on any interest rate change at its December meeting. Put on your seatbelts, we could have a wild ride between now and 1999. On the plus side the month of December is the number one month for S&P-500 gains and the number three best month for the Dow. 35 of the last 45 years the last five days of December and the first two days of January account for Dow gains exceeding +1.5%. Before you get too excited let me remind you that 1.5% only amounts to 135 points.
Several notable high flyers captured market attention on Friday. Lucent made some very positive comments about its near term prospects and jumped over $7. This and some comments from TLAB helped fire up the teleceom sector. Nokia also garnered the top spot in deliveries of digital cell phones worldwide and bounded up +$12 in two days. Both of these were on our play list for this weekend but they beat us by a day and now we will wait for a pullback before recommending them. The more aggressive readers should not wait for us to do the write-up. If you see an intraday drop and recovery then we think they would be a great play.