Tuesday, December 22, 2009

Will Stocks Rally After the First of the Year?

From Marketwatch:

Still high on the sugar provided by ultra-low interest rates and the massive amounts of liquidity provided by central banks, stocks could climb steadily in the first half of 2010, according to the predictions of some major Wall Street banks and analysts.

But beyond that time frame, many strategists color their views with caution. A big question remains as to what will happen when the Federal Reserve and other major central banks remove the massive amounts of money they injected to rescue the financial system and the global economy.

"Momentum is a powerful force," says Jack Ablin, chief investment officer at Harris Private Bank. "We still have a self-propelling combustion engine to keep the market going a while longer."

Notice the general trend of the Treasury market has been down, up, down. The "Up" is an upward sloping pennant pattern. Treasuries started the year at high levels, largely because of their safety. But as the stock market has rallied, Treasuries have sold off. Yesterday they broke through key support levels, possibly signaling a move lower.

In contract the SPYs have continually moved higher. Also note that for the last few months the rally has stalled. However, a big reason for this is prices are currently at important Fibonacci levels. In addition, we're at the end of a very successful trading year and traders may simply be holding onto their profits waiting to see what happens. However, once the first of the year comes all bets are off.