How the Year-end’s Looking Right Now

“Calling the Trend” Column, by George Leong, B. Comm.

Markets are continuing to move in a tight sideways channel. Breadth is positive and sentiment is bullish, but trading volume on the NASDAQ has been somewhat lighter over the last four sessions. This may have to do with the caution or a lack of interest to buy prior to the holidays next week. The Fed is beginning its two-day meeting on Tuesday, where we do not expect a change in its interest-rate policy. The Fed is aware of the continued risk in the economic growth and clearly does not want to push the growth off track by increasing interest rates and tightening money.

With only a few weeks left in 2009, I feel that stocks could continue to trade sideways. Everyone is talking about a “Santa Claus Rally,” which occurs between Christmas and New Year’s Day as an indication of how markets may trade heading into January and 2010. Historically what happens in this period does help to influence and foreshadow how stocks behave going forward. In 2009, January was positive and strong, which has turned out to be a good indicator of how things unfolded in the year.

Technically, the Relative Strength across the board is average and does not suggest a strong rally pending in the near term. The near-term technical picture is strongest for the DOW and S&P 500; perhaps there will be a shift to safer trades over the next few weeks, as investors may want to avoid any unnecessary risk.Technology and growth are showing the weakest signals, as investors realize some profits from what was a good year for the NASDAQ. I expect more profit-taking and rebalancing of accounts to occur, as we approach year-end.

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A rise in the dollar is pressuring commodities and stocks. There are now also concerns regarding debt in Greece and Austria. This is clearly not good given the recent episode with the Dubai debt.

In the U.S., Citigroup Inc. (NYSE/C) announced that it would be repaying $20.0 billion in TARP funds, as it wants to eliminate the government control over its business. Companies owning TARP funds are closely monitored and are restricted as per salaries and bonuses. The timing appears odd, but the banks probably want to pay out bonuses and higher salaries without attracting government involvement. I think it is a great move that will allow Citigroup to be independent again. The news will also generate some confidence towards the banking system.

Over the next few weeks, watch to see if consumers are spending, as it will likely determine the fourth-quarter gross domestic product, which is expected to fall in the quarter. Retails Sales for November came in better than expected, with a rise of 1.3% versus the estimate of 0.6% and an increase from 1.1% in October. The reading was positive, but we need to see the positive trend develop in December and 2010. However, there could be some spending issues after a CNN/Opinion Research poll indicated that Americans will cut their spending during this holiday season.