The Case for the Bulls has Validity

December 21, 2007

Pessimism and fear had its way with investors but the tide has changed as of this week. A number of interesting developments has occurred that alleviates investors of their fears. First is foreign capital being infused into the banking system, second the Fed and other Central Banks around the world helping the financial sector with their sub-prime problems, and finally, a number of positive earnings reports from the tech sector show that credit concerns may well be contained within the financial sector. This is all good news for the bulls and should be enough for investors to see some follow through into the New Year.

Also to keep an eye out for is the idea that institutions will be doing some window dressing in their portfolios to close out the year, so that they give the appearance that they have their clients’ money in all the right stocks. Also a positive finish for the market on the year, should give investors enough optimism to start the New Year off strong.

Let’s review the charts…

NASDAQ led the way for all the indexes and we believe that the market is in a good position to rally off of its recent lows. Two consecutive tests of the lower channel of the long-term trend line shows that buyers have the support necessary to holds its ground at those lows and rally ahead. Next week the NASDAQ is only open a half day on Monday and closed on Tuesday. The remainder of the week, the markets will be open for normal operation.

S&P had a good day also, though not to the extent that the NASDAQ had. But it also is showing signs that the financial sector is getting the sub-prime issues under wraps. With the weak dollar, foreign investors can actually help more to alleviate the problems in the sub-prime markets.