Markets to End Year Higher,
but Down from 2009 Gains

2010 market gainsMarkets will end up higher this year, but well off the gains of 2009.

On the plus, the S&P 500, NASDAQ and Russell 2000 are holding above their previous chart highs, while the DOW is off 0.05% below its previous chart high. Failure to hold above the previous highs could drive selling in stocks to a sideways channel.

Trading volume is again quite low, and I expect this to continue as we head into the week prior to the Christmas break. For instance, the NASDAQ has traded below two billion shares in the last 10 days and in 16 of 19 sessions.

When there is an absence of mass participation in a rally, it raises a red flag and warning.

Be careful, as the CBOE Market Volatility Index (VIX) is trading below 18, a sign of a relaxation amongst traders.

Let’s take a more in-depth look at the markets from a technical perspective. Analysis is based on the market close of December 16.

In terms of investor sentiment, the trend of the NYSE new-high/new-low (NHNL) ratio is up, with 107 of the last 113 sessions bullish. The near-term trend is positive.

In the technology area, investor sentiment on the NASDAQ is also bullish, with 66 of the last 71 sessions in bullish territory.

NASDAQ

The NASDAQ is above its previous chart high and 2,600, which is bullish.

The near-term technical picture is moderately bullish, with above-neutral Relative Strength (RS), so there could be more upside gains in the near term. The index is hovering above 2,500 and holding above its chart top of 2,320.

The NASDAQ is holding above its 50-day moving average (MA) of 2,503 and 200-day MA of 2,351. The 50-day MA is above the 200-day MA.

Watch, as the index is overbought.

DOW

The near-term technical picture for the DOW is moderately bullish with above neutral RS, so there could be additional gains in the near term.

The index is above its 50-day MA of 11,159. The 50-day MA is holding above its 200-day MA of 10,670.

Watch, as the index is overbought.

S&P 500

In the broader market, the near-term technical signals for the S&P 500 are moderately bullish on above-neutral RS, so there could be more gains.

The break at 1,200 was bullish. The index is above its 50-day MA of 1,191 and 200-day MA of 1,138. The index is also holding above its chart top at around 1,130 and a key level at 1,150. The 50-day MA is above its 200-day MA.

Watch, as the index is overbought.

RUSSELL 2000

The near-term picture for the Russell 2000 is moderately bullish on above-neutral RS, so watch for some more gains. The index trades with the economy.

The index is above its 50-day MA of 706 and the 200-day MA of 670.

Watch, as the index is overbought.

In all, I believe in adopting strong risk management to protect your investments and hard-earned capital. Consider some put options to hedge against a downside move