The Next Four Days (The Last 4 days of 2009)

What is happening as we head into 2010? Well, the first item of "significance," is that the S&P 500 and/or the SPY closed above the range we have been trading in since mid November. This was part of an upward move of five consecutive days of higher highs and lower lows, including the three and 1/2 trading days last week leading up to the Christmas holiday. This would normally be a sign of unquestionable strength, however, it happened during a holiday week that saw limited trading volume. I'm not saying to ignore this sign of strength, but it can't be taken as a confirmation that the market is going higher either. What it does show is that we are seeing a strong market into the close of 2009 on limited trading volume.

I mostly talk about the S&P, but I want to mention how the other indices are trading leading into the new year. The NASDAQ, the RUSSEL 2000 and the S&P 500 all broke out to new highs last week. The New York Stock Exchange and the Dow Jones Industrial Average are trading right around their yearly highs, but have yet to confirm a break out above resistance (See Chart Below)

CHART: Major Indexes Over the Past Month and a Half

NASDAQ up 3.46% Last Week
and 3.22% above its prev high of the year
RUSSELL 2000 up 3.85% last week
and 1.4% above its prev high of the year
S&P 500 up 2.27% last week
and 0.65% above its prev high of the year
NYSE up 2.37% last week
but 0.42% below its prev high of the year
Dow Jones up 1.97% last week
but 0.19% below its prev high of the year

As you can see, there are some lagging aspects of the market. Neither the NYSE nor the Dow Jones have moved above prior highs like the NASDAQ and S&P 500 have. That may suggest that the market isn't quite as strong as it appears. To make an even stronger case against a continued move to the upside for the overall market, just take a look at the banking and financial sectors (i.e. XLF, BKX, GS, JPM). Not only have they not broken out into new highs like a large part of the market, but they have been moving to the downside for the past several months. Even amidst this down trend, the banking and financial sectors saw positive gains last week. My point is, last week's strength and whatever happens this week, shouldn't be considered real indicators for the bigger picture of the markets in 2010.

In terms of the next four days, I wouldn't be surprised to see more positive momentum in the overall market. Look for buying opportunities. Don't be greedy, don't look for runners, take your profits when you get them. I would expect more up days this week than down days. S&P Futures are trading higher as we speak, so don't be surprised to see an up day today. And if we do see continued strength to close out the year, be weary of the market heading into 2010. I will be surprised if we don't see a correction happen fairly quickly. More on this subject in the days to come...