Broad Indexes Bounce With Positive Trade Deficit Report

The catalyst on Tuesday came from the trade deficit report favoring a 3% GDP growth for fourth quarter. That would be well above the 2.5% expected and that put buyers in a good mood again following three days of modest selling. Will the good news stick? Will this be a good enough sign to push the broad markets further in the uptrend? That will depend on the jobs report data due out later this week. For today it allowed most sectors and indexes to bounce off the first levels of support and back towards the previous highs. Thus, Tuesday has the privilege of being the first positive day of the year.

Earnings will be up next week and as we discussed in yesterday’s notes the lowering of expectations by most has set up an interesting opportunity for companies to either surprise against the lowered expectations or disappoint even further relative to the fourth quarter outcome. For me the key will still be the top line revenue growth or lack there of. We continue to see lower revenue which are the real reason behind the corporate shift lower in earnings outlook. This is another worry that will hang over the market short term.

Sectors-to-Watch

Financials are one of the top sectors on my list as we start the new year. This is a sector with no shortage of headlines on a daily basis. Today JP Morgan settled another lawsuit issue with the Modoff case for $1.7 billion. The stock fell 1.1% on the news and also pushed the sector lower as well. Watching XLF to hold support at $21.65 level short term. Uptrend is still in play and this is a sector worth scanning for leadership.

Healthcare moved up 1% on the day and is back at the previous high and a move above $55.65 would continue the uptrend. The consolidation in the sector goes back to the November high. Watch look for the sector to continue the trend.  Medical devices (IHI), healthcare providers (IHF) and biotech (IBB) are leading the sector higher with pharma stocks acting as a drag short term.

Telecom made a move higher after testing support short term. Watching for a break higher and continuation of the upside. This is a sector that comes with volatility, but also offers some individual opportunities worth scanning the sector looking forward.

Energy is struggling with crude oil testing the $93 level and holding for now. The upside is hampered by the outlook for growth in demand. The global economy is not looking great relative growth and that has slowed the upside for now. I like the sector long term, but the short term will have to work through the current issues.

Bonds continue to benefit this week from the decline in yields on long term rates. The shift came on comments from Bernanke relative the stimulus cuts and the role of the Fed. In other words he stated the Fed would continue put money into the system if the economy doesn’t improve. Thus, yields are declining, bonds rally and investors are scratching their collective heads. Could offer some trading opportunities in the sector if this trend builds.

Bottom line… the market held on to the uptrend, but the sellers are still in the wings watching. The outcome of the jobs report to end the week and the start of earnings next week will be the near term catalyst for the broad markets indexes. We have to exercise some patience currently and let this play out relative to the trend and momentum. The worries in reference to the economy remain a concern and if that grows the downside will become an issue relative to the short term outlook. Keep your stops in place and protect the downside risk of your trades.