- Technical-Analytical Market Commentary -

December 2, 2010 (FinancialWire) (By Dr. Joe Duarte) (Entire article at http://www.investrendsyndications.net/12-content/manl/duarte/2010/12/php/01.php) (Go to http://www.financialwire.net/?s=cmmtry for all recent commentaries) — The S&P 500 SPDR ETF (SPY) closed just above its 50-day moving average on 11-30.  That means that turn of the month mutual fund money may use the opportunity to enter the market.

Investors are facing a dilemma. It's time for the Santa Claus rally, but the world seems to be spinning out of control as the year ends. That means that it's time to look at the charts.

The news media is dividing its attention between the Christmas shopping season, the situation between North and South Korea, and the problems that are facing Ireland, and perhaps other European countries. Yet, there is much more out there that deserves scrutiny. For example, there is still the situation in Washington, especially the debate on taxes, entitlements, and the potential for some kind of austerity.

There is also the 2012 presidential election that is likely to start getting attention within the next six months, especially if the expectations for gridlock over the next two years are met. That means that discerning investors, meaning those with the consultants, big research apparatus, and big money, such as hedge funds and mutual funds will have a lot to think about. And that makes for a choppy market in the short term.

The S&P 500 has had three chances to surpass 1200 since November 16th. It has failed each time. That's a sign that the market is in for some potentially rough sledding, especially if the news turns grim, anywhere. And with plenty of hot spots to choose from, the odds of some kind of nasty surprise have risen. Still, the market hasn’t totally broken down either.

The S&P's stall has come as the U.S. Dollar (USD) has been rising on the heels of the rising global uncertainty. The dollar, despite China and Russia having abandoned it as an exchange medium for deals with one another, is still a place of refuge for investors in times of crisis. A big rally in the dollar could hurt stocks in the short term. It would be a positive for the U.S. in the long term, however.  Short term, though the dollar may pull back.

As the S&P 500 has been faltering, the small stocks in the Russell 2000 index of small stocks (RUT) has been holding up better. That's not unexpected. Small stocks tend to rally late in the year and into January. Also, small stocks are often boosted by a strong dollar. Many small companies tend to do less business outside of the U.S., compared to the large multinationals that populate the S&P 500 and the Dow Jones Industrial average.

Finally, it's important to look beyond the indexes at pure market breadth. The Nasdaq advance decline line is a good way to accomplish that. And that's a mild negative right now, as despite the relative strength of the small stocks, NAAD is off of its recent highs and looking top heavy. That means that there are more sellers active in the market right now. Some of that may have to do with tax selling and other procedural issues, such as profit taking and portfolio window dressing by portfolio managers.

The bottom line is that there are many significant crosscurrents at play currently and that the market is reflecting that push and pull.

Seasonal tendencies, geopolitical pressures, and the tendency for portfolio managers to dress up their portfolios for the end of the year review are coming together to create a sloppy market.

That should come as no surprise given the nice rally that took place from August to November in the U.S. stock market. That means that the market is due for some consolidation, and perhaps even a pullback of some significance.

For investors, it means that this is a good time to evaluate each open position and to consider taking some profits, buying some protection, or both.

(Go to http://www.financialwire.net/?s=drtjby to see more commentaries by Dr. Joe Duarte, and go to http://www.financialwire.net/2010/05/01/about-duarte/ for more about Dr. Duarte.)

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