12/21/2016: Dow 19941.96 | S&P 2265.18 | NASDAQ 5471.43 | Russell 2K 1375.19 | NYSE 11142.57 | Value Line Arith 5340.24
Psychological: Robust Holiday Cheer. Weekly CBOE Put/Call ratio fell to 0.53 for the week ending December 9, a reading that has been common with past interim tops.
Investors Intelligence Advisors Sentiment survey has bulls at 59.8%, just below 60% the level at which caution is usually in order. Bullish sentiment is at lofty levels which warrants close attention, but does not signal immediate danger just yet.
Fundamental: Mixed. Third quarter GDP was revised higher to 3.5% while the unemployment rate has dipped to 4.6%. Only issue with GDP in the quarter is it looks like it will be a one-time occurrence as a large soybean harvest and export inflated the quarter while the primary reason for the dip in unemployment was shrinkage of the labor force. The post-election rally has also elevated stock valuations to levels that concern some. The incoming administration is promising large and significant policy changes that could spur growth and boost corporate profits, but none of this has happened yet.
Technical: Consolidating. After breaking out to new all-time highs, DJIA, S&P 500 and NASDAQ appear to be pausing to digest and reflect on recent gains and possibly current and future valuations. Stochastic, relative strength and MACD indicators are all hovering around overbought levels. A brief pause would go a long ways towards alleviating the overbought condition. DJIA 20,000 is being billed as a milestone, but in reality is merely a nice round number that spurs an emotional response. For this reason and this reason alone, DJIA 20,000 could act as mild resistance. Once surpassed, the previous uptrend is likely to resume.
Monetary: 0.50-0.75%. As expected, the Fed did raise its key rate to a new range of 0.50-0.75% at its December meeting. Yes this is higher than what it has been for a rather long period, but within historical context, the Fed is still highly accommodative with a sub-1% rate. Further, the Fed remains data-dependent and the data is indicating any subsequent increases will be well-telegraphed and incremental in order to avoid any potential shocks to the financial system.
Seasonal: Bullish. January is the third month of the Best Six/Eight, but it is the last of the Best Consecutive Three month span. January is the top month for NASDAQ (since 1971) averaging 2.5%, but it has slipped to sixth for DJIA and S&P 500 since 1950. The Santa Claus Rally ends on January 4th and the First Five Days early-warning system ends on the 9th. Both indicators provide an early indication of what to expect in 2017. However, we will wait until the official results of the January Barometer on January 31 before tweaking our 2017 Annual Forecast. Alerts will be issued after the close on these dates.