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Saturday, December 11, 2010

WALL STREET : Economics Data Boost DJIA Atop 2 Year High

SPX, COMP Assail New Heights; GE's Dividend Hike Boosts the Dow
U.S. stocks finished at a two-year high on Friday, and also gained for the week, helped by mostly upbeat economic data.

Stocks spent most of the session in the black today, as the Street applauded pleasantly surprising economic data and encouraging news on the corporate front. Uncle Sam sparked confidence bright and early this morning, after growing demand for American goods pushed exports to their highest level in more than two years in October. What's more, the government said the U.S. trade deficit unexpectedly narrowed to a nine-month nadir of $38.7 billion, marking a 13% decline from September.

In the same vein, China reported record-high exports and imports in November, which likely contributed to the country's decision to bolster its banks' reserve requirement for the third time in a month, and heightened expectations for a Chinese interest-rate hike on the horizon. Meanwhile, word of General Electric's (GE) second dividend boost this year added fuel to the blue chips' fire, with the Dow Jones Industrial Average finishing north of 11,400 for only the fourth time in more than two years.

The Dow Jones Industrial Average (DJIA – 11,410.32) stair-stepped higher as the session progressed, finishing with a gain of 40.3 points, or 0.4%. Only seven of the Dow's 30 components bucked the trend, with Kraft Foods (KFT) paving the path lower, while General Electric paced the 22 advancing blue chips with a 3.4% surplus; Cisco Systems (CSCO), meanwhile, settled right where it started. For the week, the Dow tacked on 0.2%, ending at its loftiest level in a month.

The S&P 500 Index (SPX – 1,240.40) also increased its lead throughout the session, adding 7.4 points, or 0.6%, to end at a fresh two-year peak.

In similar fashion, the Nasdaq Composite (COMP – 2,637.54) advanced 20.8 points, or 0.8%, to settle just a hair's breadth from its near-three-year acme of 2,639.41, marking the tech-rich index's first weekly finish north of the 2,600 level since January 2008. For the week, the SPX rallied 1.3%, while the COMP fared the best of the three, adding an impressive 1.8%.

“We’re just drifting slightly higher,” said a portfolio manager and quantitative analyst at Chase Investment Counsel. “People aren’t really pushing to take positions at higher levels, but at the same time, they’re not actively walking away from the market either.”

The Dow closed higher on Friday and the high-range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are overbought and have turned bearish signaling that a short-term top might be in or is near. Closes below the 20-day moving average crossing at 11,211 would signal that a double top with November's high appears to have been posted. If the Dow extends this week's rally, the August 2008 high crossing at 11,867 is the next upside target. First resistance is Tuesday's high crossing at 11,450. Second resistance is the August 2008 high crossing at 11,867. First support is the 10-day moving average crossing at 11,292. Second support is the 20-day moving average crossing at 11,211.

Expectations for a Chinese interest-rate hike weighed on commodities; crude oil and gold investors take profits
Crude futures turned lower today, tumbling in the wake of China's decision to raise its banks' reserve requirements, and ahead of the Organization of Petroleum Exporting Countries' (OPEC) weekend summit. Furthermore, concerns of a looming Chinese interest-rate hike were exacerbated after the International Energy Agency warned that inflation was "creeping up" in the global powerhouse, which also weighed on black gold. Against this backdrop – and despite Morgan Stanley's forecast for $100-per-barrel oil in 2011 – January-dated crude oil futures gave up 58 cents, or 0.7%, to settle at $87.79 per barrel. For the week, the front-month contract surrendered 1.5%.

Elsewhere, expectations for an interest-rate hike in China also pressured gold futures lower today, lessening the metal's appeal as an inflationary hedge. Meanwhile, a round of relatively encouraging economic data diminished traders' appetite for "safe-haven" assets like gold. By the close, gold for February delivery shed $7.90, or 0.6%, to end at $1,384.90 an ounce. For the week, the malleable metal gave back 1.5%.

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