An Important Clue About Stocks In 2009
For those of us interested in what 2009 holds for stocks the next few weeks may offer an important clue. December failed to produce a meaningful "Santa Claus Rally". Stocks did trend up most of the month but only closed up 0.8% above November's close. Not a bad feat considering the first trading day of December started with a nearly 9% decline on the S&P 500. The end of the year did see some impressive gains. From the 24th - 31st the S&P 500 advanced just over 4%. Unfortunately, most institutional investors were on vacation and trading volumes were very light. However, we did see an improvement in stock leadership with companies like Life Partners (LPHI), Tower Group (TWGP), and Gentiva Health Services (GTIV) breaking out and companies like McDonald's (MCD), Stanley (SXE) and Mantech (MANT) approaching good entry points. As a broad measure of stock leadership, however, the IBD 100 lagged the other broad indexes in last week's rally.
Despite a horrible retail sales season, deteriorating employment conditions, and continued weakness in residential real estate, the stock market is always looking forward and we should have a pretty good idea in the next few weeks if the market thinks the U.S. economy will be on better footing by this summer. With lower oil prices, a large economic stimulus package in the works, lower mortgage rates and resilient U.S. workers, perhaps we will be able to look back on November 2008 as the lows of the Credit Crisis Bear Market.
On the other hand, if stocks fail to rally meaningfully in January the likelihood that the November lows will be tested and potentially broken increases. If you are on the sidelines with cash, or in positions you would like to exit, it is a good time to pay close attention to market action.