Securities Research Services

Wednesday, December 27, 2006

Momentum Scarce this Holiday Season

Yesterday had a mildly bullish bias as the small caps took over and started moving higher even as the NASDAQ lagged. Overall, however, the strength we were seeing in the market up until a week or two ago has given way to neutrality almost across the board.

Taking a look at the longer term charts we can see a potential scenario shaping up. The QQQQ, as mentioned, lagged yesterday. If you look at the weekly chart it appears to be building a base that could take a few weeks to form. During this base building process, prices could potentially dip down to $42. As long as $42 holds, assuming this scenario is correct, stocks could rally strong mid to late January.

If indeed this is what is taking place, we would expect the S&P and Dow to trade sideways or dip slightly in a grueling base-building process over the next few weeks. As yet, we are not seeing any serious distribution, just a slowing down of momentum that is likely the beginning of a consolidation period.

This week the market should continue to rally, but from what we saw yesterday, the rally may not get far and profit potential is not very strong. This is a stock picker's market right now and just a handful of stocks are showing any real potential.

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