It is unlikely that anyone would call the marginal buying of late yesterday afternoon a rally, but the major indices did close slightly higher. The market spent most of the day on the minus side due to mixed economic news and fear that the markets would find it difficult to match this year’s performance in 2010.

The Chicago purchasing managers’ index (PMI) exceeded estimates, coming in at 60, which is the highest level in three years.

Oil inventories fell, but by a smaller-than-expected margin of 1.54 million barrels. The U.S. dollar gained against both the euro and the yen, but crude oil rallied in the face of the dollar’s advance. It was the sixth consecutive day higher for crude, which the Wall Street Journal reports is up 78% for the year.

At the close of another slow session, the Dow Jones Industrial Average (DJI) had gained 3 points to 10,549, the S&P 500 (SPX) rose fractionally to 1,126, and the Nasdaq (NASD) rose 3 points to 2,291. 

The NYSE traded just 644 million shares, and the Nasdaq traded only 390 million shares. On the Big Board, decliners outstripped advancers by about 3-to-2, but advancers led by a small margin on the Nasdaq.

February crude oil rose 41 cents to $79.28 a barrel, and the Energy Select Sector SPDR (XLE) fell 6 cents to $57.47, finding support on its 50-day moving average. 

Gold fell for the second straight day, dropping the February contract to $1,092.50 an ounce, off $5.60. The PHLX Gold/Silver Sector Index (XAU) fell $1.35, closing at $168.12.

What the Markets Are Saying

With all of the major indices breaking to new highs, the natural question is: “Will the rally last?”

My answer is yes — well, sort of. 

With momentum so strongly in favor of the bulls, my guess is that after some horse-trading in the first week or so of the new year, we could see an explosion of small- and mid-cap buying, with the focus on technology stocks. 

I don’t pretend to have a crystal ball, but prior bull market patterns suggest that from the second week of January to late February, the trend is usually positive. The reason is that investment managers are willing to take more risk at the beginning of the year when they have lots of money to work with as new pension and IRA money becomes available. 

And since these money managers are creatures of habit, they will probably also head for those stocks and sectors that did well for them last year, but pulled back in the last month to major support zones. 

One of those sectors is gold and other precious metals. Gold, as measured by the SPDR Gold Trust (GLD), rose almost 40% from its start on Jan. 2 to its high on Dec. 3, but suffered a sharp round of profit-taking in December with the ETF falling more than 10% from its high. 

Silver, as measured by the iShares Silver Trust (SLV), had an even more dramatic advance, up more than 65% from low to high, but was hit for a loss of more than 13% in December. 

Another sector that had enormous gains was the emerging markets. And a winner for the “Trade of the Day” was the Vanguard FTSE All-World ex-US ETF (VEU), which had a 96% appreciation from its February low of $23.32 to the December high at $45.69, and is down only 5% from that high. Any early dollar weakness following the greenback’s recent rally could give VEU new life in the new year.

But, whatever your investment strategy, I wish you the traditional Irish blessing: 

May the road rise up to meet you.
May the wind always be at your back.
May the sun shine warm upon your face,
and rains fall soft upon your fields.
And until we meet again,
May God hold you in the palm of His hand.

Have a very happy New Year!

Today’s Trading Landscape

Earnings to be reported today include: Piedmont Natural Gas (PNY) and Carter Holdings Inc. (CRI).

Economic reports due: jobless claims (the consensus expects 460,000), EIA natural gas report, Fed balance sheet and money supply.  

5 Surprising Rules for Rebuilding Your Wealth
Investors sitting on big losses are being told to just hunker down and take their lumps … and if they can just be patient and wait another 12 or 24 months, their investments will come back. That’s shameful advice! Once you know the new rules of trading, you’ll see how easy it is to earn double- and triple-digit profits now. Click here to start rebuilding your wealth today.