And They're Off!

ETFs and stocks get off to good start for 2012
Major U.S. stock market indexes started 2012 with gains as the Dow Jones Industrial Average (NYSEARCA:DIA) added 1.2%, the S&P 500 (NYSEARCA:SPY) gained 1.6% and the financial sector (NYSEARCA:IYF) added 2.4% to lead markets higher.

The first five days of January are very important as in years since 1950 when the first five days have been winners, the rest of the year has logged gains 87% of the time. Monday is the fifth trading day of 2011 and so it could be a key indicator for 2012 as a whole. The “first five days” indicator comes from my friend, Jeffrey Hirsch at Stock Traders Almanac, who presents other fascinating January seasonality indicators in his latest article, “January Abounds With Indicators And Seasonality.”

On My ETF Radar
Technical indicators continue to be strong in the early going for 2012.

The S&P 500 ETF (NYSEARCA:SPY) printed a “triple top breakout” on January 3rd and now has a bullish price objective of 1430. One more line of major resistance resides at the 1290 level just ahead, and after that there isn’t much resistance until the 1340 level near the 2011 highs. Finally, the whole configuration now is solidly above the bullish support line at 1190.

Furthermore, the Dow Jones Industrial Average (NYSEARCA:DIA) has formed a “golden cross” in which the 50 day moving average has crossed above the 200 day moving average and this is a bullish indicator indicating the probability of higher prices ahead. It has yet to be confirmed by the S&P 500, (NYSEARCA:SPY) but that chart, too, is moving towards confirmation of this pattern.

The Economic View From 35,000 Feet
Last week’s economic reports were mostly positive with good news on the unemployment front, consumer confidence and manufacturing reports from the United States and China.

However, not all was well with the world as the European crisis continued to simmer and German factory orders dropped 4.8% for November, the steepest drop in three years. The iShares MSCI Germany Index (NYSEARCA:EWG) started the New Year with a 4.6% gap higher opening on the first day of trade but by week’s end had declined all the way back to within pennies of its 2011 close as investors responded to the news. Germany will continue to be in the news this week as Chancellor Merkel meets with French President Sarkozy in Berlin and on January 20th with the Italian Prime Minister, all leading up to the European Union summit on January 30th which everyone will be watching for movement towards a solution to the continent’s crisis.

Italy continues making the news with its 10 Year Bond again back above the widely viewed “unsustainable” level of 7% and many analysts think recession in Europe has already started. The highly regarded Economic Cycle Research Institute’s weekly index fell again for the week of December 30 as the ECRI continues to predict recession ahead.

Finally, January is the season for forecasting and crystal ball gazing, and while no one can predict the future, my friend, Todd Harrison gives us a great view of the big picture view in his article, “10 Themes for 2012.”

Bottom line for ETF investors:
Next week we’ll see the start of earnings season with Alcoa (AA) in the important Materials Sector (NYSEARCA:XLB) and on Friday, JP Morgan reports earnings to kick off news in the Financial Sector (NYSEARCA:IYF) Both of these companies are viewed as bellwether issues and will cast some light on earnings season which will get underway in earnest over the next couple of weeks. Europe will remain a big player as we head towards the summit at the end of January. Many potential bear ambushes lie ahead, but for today, markets got off to a good start and appear poised to move higher.

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