Saturday, January 12, 2013

Stock Surge Puts Bears Back in Hibernation

Even after a flat Friday, the major U.S. equity indices made a lot of progress on technical front this week.

The Dow Jones Industrial Average gained 7%, advancing nearly 787 points, enjoying their best weekly percentage gain since mid-July 2009, and the second-best point rise in the blue-chip index's history, according to Dow Jones Indexes. The S&P 500 booked a 7.4% gain when the dust cleared, causing market observers to hearken back to the last time stocks were able to put together such a dramatic surge.

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"This week's gain of near 8% was the '500's' largest weekly increase since the week of March 13, 2009," said Mark Arbeter, chief technical strategist at S&P Capital IQ in an intraday note. "That just happened to be the week that the current bull market in stocks got started. As important, it probably put to sleep, or hibernation, any more talk of a bear market until the second half 2012 or 2013, in our view."Arbeter said it looks like the market put in an "important low" this week, enduring "a fairly deep test of the double bottoms traced out between August and October, while many other indices and individual stocks have either completed bullish inverse head-and-shoulders (H&S) formations or are still working on completing inverse H&S patterns."The levels to watch from here for the S&P 500, according to Arbeter, are short-term resistance in the 1220-1290 range (the index closed Friday at 1244), and the 1295-1370 range where the strategist said "longer-term overhead supply is thick." A hurdle on the upside next week could be 1275, while support exists at the 50-day and 200-day exponential moving averages of 1217 and 1235, respectively. Some digestion of this rally is likely in the offing, Arbeter said, but after that resolves itself, maybe in the next week or two, the chart looks favorable for a spike to the upside early next year. "Once a pause/pullback is complete, we think the '500' could run up toward the 2011 bull market highs by the first part of 2012, with the index running up to the 1,400+ region sometime in the first half of 2012," he said.

But there are those who don't think the market is set up for clear sailing from here, mainly because of a belief that Europe's sovereign debt crisis still hasn't been adequately addressed.

"Although stock markets recovered much more quickly than we had expected following the sharp declines over the summer, we expect the crisis in Europe to pull stocks lower again," said Macroeconomic Advisers in commentary published late Friday. "We now see U.S. equities falling about 7% through the end of the first quarter, a path about 10% below that projected last month."

Macroeconomic Advisers went ahead and cut its estimate for fourth-quarter U.S. gross domestic product growth to 2.7% from 2.9%, saying that the data supports the perception that conditions are firming but it's still wary of Europe, which it believes "will get significantly worse before it gets sustainably better." The Dec. 9 summit of Europe's leaders could be a stumbling block for U.S. stocks, putting a pin in the bubble of optimism created by this week's coordinated effort by the world's central banks to bolster global liquidity. "While progress is likely to be made (at the summit) toward an eventual resolution that will stabilize the sovereign budget and banking crisis, and prevent splintering of the Euro, we expect that markets will become impatient with the pace of implementation and financial conditions will worsen significantly thereafter," the firm said. At the very least, investors should be careful about assuming that the volatility that's become a staple of the market since early August is a thing of the past. After all, S&P Capital IQ's Arbeter couldn't resist adding this caveat: "[T]he market changes like the weather, so stay tuned."And finally, third-quarter earnings season is essentially over with only a few components left to report, including Costco Wholesale(COST) on Thursday. The top gainers in the S&P 500 for 2011 with less than a month to go are Cabot Oil & Gas(COG), up more than 130%; El Paso Corp.(EP), up more than 80%, and Biogen Idec(BIIB), up more than 70%, while the biggest decliners are Monster Worldwide(MWW), down 70%; First Solar(FSLR), down 63%; and Netflix(NFLX), down 61%. -->To submit a news tip, send an email to: tips@thestreet.com

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