DJIM #51 2010
Monday, December 27, 2010 at 06:50AM Hope everyone celebrating XMAS had a good one, but if you think it’s time to get off the ‘eggnog’ and trade away, you might have switch to something stronger to get through the week as 3 feet of snow hit the market coast land.
We entered last week hoping for some ‘unfinished business’ via window dressing starting and we did get some to push through 1246/1247SPX. Unfortunately, any further incremental gains via window dressing (commodities especially) for next week were probably ‘offset’ by a lending hike coming down the chimney from China on XMAS day. In this holiday environment it is hard to gauge the effect of this small bit of a hike as most have closed their books for 2010, plus a first .25 could be priced in as a 'prudent' China was expressed recently. Also, the expectation was for lending hikes to be front loaded in 2011 was discussed here, so it shouldn’t have a Oct 19 effect (see recent note here on big market drop and quick recovery after last hike)..."Recall, China’s last lending cut was a “SURPRISE” in October and the market swan dived about 270 DOW/20 SPX pts, crude was off 4%, but 2 days later, all the losses were recouped. The next one should not be a ‘surprise, but the expectation soon and so market should behave better.." Also, since last RRR hike things have dramatically turned in the expectations of growth/GDP in the US, so effect should be minimal to close off 2010. Come January, it may be different as many things intertwine (see recent note).
Right now, the market is complacent on light attendance, any slight negative macro/micro (earnings) all pretty well being swept under the rug. The point is not to carry this market ‘complacency’ and be trapped with the sanguine looking forward crowd once we’re in January.