The US Dollar index is down 0.8% for the month of December. The Euro has found renewed strength as the EU and ECB continue to sort out the Greek debt crisis and make progress on an EU-wide banking oversight agency. The banking oversight agency proposition remains an important component for the financial unification of the EU, however, significant issues remain to be worked out before passage and implementation. The Euro closed Friday at $1.319 up 1.6% for the month and 2.6% for the fourth quarter. The US Dollar did rebound Friday as nervous investors returned to the US Dollar as fear prompted “risk-off” trading in the markets. The Japanese Yen has come back into the headlines as the newly elected Prime Minister, Shinzo Abe, has called for the Japanese Central Bank to resist efforts by the United States and Europe to weaken their currencies at the expense of the Yen. The Yen has been strengthening against the US Dollar for most of the year, but with Mr. Abe’s recent comments, the Yen has weakened. Abe is one of the first significant political leaders to openly talk about currency manipulation even though the US, EU, China, and Switzerland have all been doing so via monetary policies for some time now. This will be a story to watch in 2013.
My broad market indicator of trend and risk, the New York Stock Exchange Bullish Percent (NYSEBP) reversed last Thursday, December 20th, to a column of X’s meaning demand is back in control. The NYSEBP has been in a positive trend since bottoming at 53.59 on November 16th, and closed Friday at 60.38. I see this as a very positive signal, however, it will be extremely important to see if the NYSEBP can continue increasing. I say this because the previous two highs—76.04 on February 17th and 67.38 on Septemer 14th have been getting sequentially lower. This series of decreasing highs is not a bullish trend. Therefore, I will remain cautious until I see if the NYSEBP can push above 67.38 and create a higher high than the previous one.
There are no signicant economic reports next week except for Thursday’s Initial Jobless Claims and November New Homes Sales. Initial claims are expected to increase 4000 from 361,000 to 365,000, and new home sales are expected to increase from an annual rate of 368,000 to 375,000. There is general consensus that the housing market has bottomed and is moving upwards.
The DWA analysis of the markets has seen a change in the overall ranking of the five major asset categories with International Stocks moving from fourth to third behind US Stocks and Bonds. Currencies has moved to fourth position and Commodities remains in last place. Middle capitalization stocks are favored, as is growth over value, and equal-weighted indexes over capitalization-weighted indexes. Equal-weighted indexes are those where each stock in the index is weighted the same, while in capitalization-weighted indexes the larger stocks have the largest weighting consistent with their size relative to the other stocks. On a relative strength basis, the top three major economic sectors are unchanged: Consumer Discretionary, Health Care, and Financials. Real Estate, Consumer Staples, and Information Technology are in positions four through six. Energy and Utilities are the bottom two sectors. US Treasuries and International Bonds are favored in the Bond category, while US and Developed Markets are favored within the International stock category. India and China have been making some strong moves in the past month or so in the International stock category and I am exploring options in these regions. Energy and Agriculture are the favored sectors within the Commodity category.
My next Market Update and Commentary will be published in two weeks. No doubt it will be a very interesting time. I hope everyone has the opportunity to celebrate this joyous holiday season with family and friends, and I wish you a very Happy New Year!