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Markets

Will Stocks Sell-Off Before the New Year?

FedEx Corporation (NYSE: FDX ) promised to deliver, and both the Dow Industrials and S&P 500 responded with new two-year closing highs. And the Philadelphia Federal Reserve Bank helped push prices higher with a generally optimistic economic report.

In corporate news, FDX rose 2% despite missing its quarterly revenue and earnings forecast. But the company raised its annual earnings forecast to $5 - $5.30 a share for 2011, up from analysts' consensus of $5.20, and said that the global economy was healthy, as well. United Parcel Service, Inc. (NYSE: UPS ) responded to its chief competitor's optimism by gaining 2.09%.

But MasterCard Incorporated (NYSE: MA ) fell 10.32% and Visa Inc. (NYSE: V ) lost 12.67% as a result of the Fed's proposed change in rules that would cap debit card "swipe fees" to 12 cents per transaction. General Mills, Inc. (NYSE: GIS ) rose a fraction following a positive quarter, but profit margins fell as a result of higher commodity costs. Pier 1 Imports, Inc. (NYSE: PIR )‎ fell 2.3% after missing analysts' Q3 estimates.

In economic news, the Philly Fed said that its index of general business activity had its best month since April 2005, but the employment index indicated that hiring had slowed and that inflationary pressures are increasing. It went on to say that "the percentage of firms indicating that their costs would be higher in 2011 was greater than the percentage reporting that their costs would be lower." And it added that employee benefit costs are expected to rise by 8.6%, wages by 2.1%, and other related costs by 2.3%.

Treasury bonds rose with the 10-year note at a yield of 3.475% and the 30-year at 4.58%. The euro rose slightly as the markets awaited the results of a European Union summit called to provide a permanent solution to Europe's debt crisis. In late trading the euro was at $1.3232, up from Wednesday's close of $1.3221.

At the close, the Dow Jones Industrial Average gained 42 points at 11,499, the S&P 500 rose 8 points to 1,243, and the Nasdaq gained 20 points at 2,637. The NYSE traded just over 1 billion shares with advancers ahead of decliners by 2-to-1. The Nasdaq exchanged 473 million shares with advancers ahead by 2.2-to-1.

Crude oil for January delivery fell 92 cents to $87.70 a barrel, and the Energy Select Sector SPDR (NYSE: XLE ) gained 37 cents to $66.16. February gold settled down $15.20 to $1,371 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU ) lost 2.91 points, closing at 218.29.

What the Markets Are Saying

The intermediate-term and long-term trends remain very bullish, so investors should stick with their current portfolios and buy on dips.

But the extreme near-term trend is in question. It is characterized by trading that is confined to a very narrow band while internal and sentiment indicators are at overbought levels. Thus, slightly higher closing prices for the Dow and the S&P 500 without new intraday highs, on anemic volume and average breadth, are clues that the market is struggling to make a big punch to the north.

First to the internal indicators: Moving Average Convergence/Divergence (MACD) , stochastic (fast and slow), and momentum are universally overbought. The only internal tool that is not as overbought as at other highs this year is the Relative Strength Index (RSI) , which is above the midpoint of its range, but could move higher.

Sentiment numbers remain in the stratosphere. AAII reported yesterday that bullish sentiment at 50.2% is above its historical average for the 15th consecutive week. And bearish sentiment at 27.1% rose 4.6% (average is 30%). You have to go back to 2004 to find an extended period of such high bullish sentiment among AAII subscribers. As for the Investors Intelligence Advisor Sentiment Survey, the bulls moved up to 56.8% from 56.2% last week. This puts the bullish reading just above the 56% reading from April.

In short, many indicators are at or close to the April highs. Since the indicators are inverse, they are telling us that a statistical chance of an impending strong, high-volume advance is low, but the chance of a mild correction is high. Thus, short-term caution is advised with day traders taking bearish positions on rallies up to intraday resistance lines. But, as I said before, the long-term and intermediate-term technical readings remain bullish.

For a top tech stock to buy, see the Trade of the Day .

Today's Trading Landscape

To see a list of the companies reporting earnings today, click here .

For a list of this week's economic reports due out, click here .

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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