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Market Wrap

Anticipating Santa

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Stocks continued their recent rally, which began in earnest Thursday, as traders and investors across the globe await a visit from Santa.

Unconfirmed reports from the far northeastern reaches of Russia in Provideniya, Russia had Yupik children finding mittens and parkas under this year's tree.

Global Equity Benchmarks, Currencies, Oil and Gold -

Santa's visit has been most eagerly anticipated in Shanghia, London and among the small caps of the Russell 2000 (RUT.X) 794.39 +1.11% since last Monday's close.

If anything, the strong gains among the weaker small caps suggest short-covering into the holiday trade.

The NASDAQ-100 (NDX.X) 2,128.62 +0.79% "Claused" its way back to its pre-FOMC close of 12/10/07.

Heavyweight Apple Computer (NASDAQ:AAPL) $198.80 +2.52% gained $4.89 to close at another all-time high. The stock opened at $195.03 to start the session, but accelerated above $196.00 on rumor that a small hedge fund based in the mountains just north of Whoville was covering its short position.

Hey! Even the Grinch realized that Christmas was more than just gifts and presents. After he returned all the presents and trimmings back to Whoville, the Whos warmly welcomed him back.

U.S. Market Watch -

In a half-day session, buyers prevailed from the opening bell.

In Monday's market wrap I noted how "oversold" many of the internal indicators were. At today's close, many of these measures are right back at levels found on 12/10/07 and after this strong 3-day rebound, I've been suggesting that bulls lock in some gains where they have them.

Having turned bullish on Tuesday of last week in the OptionInvestor.com market monitor for the QQQQ just below the $50.00 level, these gains should be protected.

I (Jeff Bailey) was not "certain" that Oracle (NASDAQ:ORCL) $22.76 +0.22% and Research in Motion (NASDAQ:RIMM) $117.98 -0.54% would experience such bullish responses to last week's earnings, but thought index traders should stick with the strongest.

That bet only pays off when gains are locked in and realized.

NYSE and NASDAQ Comp. Internals - 10/29/07 - 12/24/07

As mentioned earlier, market internals at both the big board and NASDAQ are much improved.

For a second-straight session, advancers easily outnumbered decliners by nearly 3:1 at the NYSE, while NASDAQ reported a narrower 4:3 margin.

One "reason" I suggest bulls lock in some gains from this tremendous bounce is that the NYSE 5-day advance/decline ratio (column M) is right back at ratios found on 12/3 and 12/10.

When I look at today's NYSE new highs of 100, that's not as bullish as I would think a BULL wants to see compared to Friday's 100 new highs.

Point here would be that we're probably seeing the SAME 1, 2 and 3-lettered names making the new high list, but not really seeing others join in despite today's +0.87% price gain for the NYSE Composite ($NYA.X) 9,873.48.

Something I would continue to monitor.

However, you can begin to see how "oversold" the NYSE 5-day A/D ration was on Monday (12/17/07) at 29%, and what type of rebound we've seen in this internal measure.

Charted on a point and figure scale of 2%, it would take a 5-day A/D ratio measure of 54% to see a 3-box reversal lower (60% on chart - 6% = 54%), and it would take a still higher measure of 65% to see a "buy signal" (above the inflection high from 12/3/07). It would currently take a 28% measure to generate another "sell signal", where 38% would be just below the 12/17/07 inflection low of 29% (charted to 30% on a 2% box chart).

Here, we could assess NYSE A/D 5-day ratio as a BULL RISKING a 61% measure down to 54% near-term (3-box reversal) and then further to 28%. At what seemed to be an important 62% on 12/3/07 and 61% on 12/10/07, then bulls should be disciplined here.

The NASDAQ a little stronger near-term. This isn't overly surprising considering the longer-term. Again, I continue to monitor should we see a "shift" as was witnessed earlier this year with the Russell 2000 ($RUT.X).

At today's close, we see the NASDAQ A/D 5-day ratio (column T) reaching 60%, and that's enough to generate a "buy signal" above the 12/10/07 inflection high of 56%. Not unlike the NYSE's a/d ratio, it would take a 3-box reversal lower measure of 54% to signal some weakness near-term, and a decline to 30% to generate a "sell signal," which would be below its 12/17/07 inflection low of 32%.

NYSE and NASDAQ NH/NL Measures - 10/29/07 to 12/24/07

Not only have we observed some a/d ratio's reverse up from "oversold" levels, but both the shorter-term 5-day NH/NL ratios at the NYSE and NASDAQ have also reversed up at today's close.

On 12/20/07, the NYSE's 5-day NH/NL ratio (column AE) fell to 10.3% (as close as 10.3% is to 10.00%, it isn't 10.00%, so we chart to 12%). See how close this ratio was to its 11/21/07 inflection low measure of 7.1%? For this shorter-term ratio to generate a "buy signal," we would need to see a ratio of 52% (above the 12/11/07 inflection high). To see a "sell signal," we would now need to observe a 5-day NH/NL ratio of 10.00%, which would be just under the recent 12/20/07 inflection low. Even though this shorter-term ratio has reversed back up, I keep its color "red" as it hasn't shown the bullish MOMENTUM to quite get it above its more intermediate-term 10-day NH/NL ratio (column AF) of 22.0%, which is still edging lower at 22.0%.

Here's a chart of the NYSE NH/NL ratio, where it helps the trader and investor better understand the quantitative data from the table.

Note where the NYSE Daily Ratio (column AD) is at (45.5%). If we are to see the NYSE 5-day NH/NL ratio get a "buy signal" at 52%, what does the daily ratio have to do at a MINIMUM?

NYSE NH/NL Ratio Chart - 2% box scale

The above NYSE NH/NL ratio chart looks quite similar to the NASDAQ's NH/NL ratio chart, and I would have to analyze this important internal indicator of bullish leadership and bearish leadership depicting an "oversold bounce," at this point.

To become more than that, I would need to observe a 5-day NH/NL ratio at 52%.

One "message" I feel that BOTH the NYSE and NASDAQ Comp. internals suggest is that the RECENT LOWS are now VERY IMPORTANT levels of support.

Here's a quick look at the NASDAQ Composite's NH/NL ratio chart.

NASDAQ Comp. NH/NL Ratio Chart - 2% box

One reason I felt QQQQ bulls should look to take some profits today is from the above chart.

Again, we've seen a VERY BULLISH 5% bounce since Wednesday and with the NASDAQ's daily NH/NL ratio (see NH/NL column AH) now at 47.6%, a large part of an "oversold" bounce may have been largely had.

With some profits booked, I think bulls would look for another bull entry on a pullback, near QQQQ $51.00, and look for the Santa Claus rally (last 5days of year and first 2 in January).

NASDAQ-100 Tracker (QQQQ) - Daily Intervals

I usually do NOT put great weight into market action into a holiday as the bulk of market participants are NOT around to trade, or cast their votes.

However, this is a GREAT time to try and get a "read" on next year as the Santa Claus Rally, or LACK of gains can be telling for INVESTORS as the New Year is just around the corner.

With the QQQQ up an impressive 21.68% over the last 52-weeks, I would have to say, based on observation, that it has been a FAVORITE among bulls.

Last year, the QQQQ closed at $42.93 with 5 days left in the year (2006) and finished the 2nd session in January at $44.06, perhaps hinting of a bullish year.

The S&P 500 (SPX.X), and index I and many consider to be a very good representation of the U.S. stock market closed at 1,418.30 with 5 days left in the year (2006) and finished the 2nd session of January at 1,418.34, perhaps hinting of a very modest year of gains.

I hope everyone as a Merry Christmas and Happy Holiday! I will not be writing a market wrap next Monday, but hope to see all of you on January 7th!
 

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