Despite a better-than-expected jobless claims report on Thursday, the market focused more on profit-taking in groups that had big gains for the year.  Technology stocks were hit the hardest for the day, but they were the biggest winners in 2009, with a gain of 59.9%. And the Nasdaq (NASD), the major index with the most exposure in techs, gained almost 44%.

Of the technology sector’s sub-sectors, the clear winner was semiconductors. The PHLX Semiconductor Index (SOX) gained 70% in 2009. And individual stocks with the biggest gains came mostly from the technology sector, too. Apple (AAPL) gained 147%, Amazon.com (AMZN) rose 162%, and Google (GOOG) was up 102% from the start of 2009.

The most talked about sector was probably financials. But they weren’t even in the top five best performing groups, up only 14.8% for the year. On Friday, financial stocks lost 0.4%.

At the close, the Dow Jones Industrial Average (DJI) was off 120 points, closing at 10,428, the S&P 500 (SPX) fell 11 points to 1,115, and the Nasdaq lost 22 points to 2,269. 

NYSE volume totaled just 679 million shares, and the Nasdaq traded 380 million shares, both with decliners ahead by almost 2-to-1.

Crude oil for February delivery rose 8 cents to $79.36, mostly as a reaction to a slightly lower U.S. dollar early in the day. The Energy Select Sector SPDR (XLE) fell 46 cents to $57.01. 

Gold for delivery in February rose $3.70 to $1,096.20. The PHLX Gold/Silver Sector Index (XAU) gained 13 cents, closing at $168.25.

What the Markets Are Saying

At first glance, Thursday’s 120-point Dow retreat, along with the weekly decline of 92 points, gives an ominous look to the bar charts. With that, several of the internal indicators have turned down with the Moving Average Convergence/Divergence (MACD) and stochastic both triggering minor sell signals.

Other indicators appear to be equally bearish with the sentiment numbers for last week also negative. The AAII sentiment poll, a contra-indicator, went  from 37.68% for both bears and bulls, to 49.18% bullish and 22.95% bearish. The CBOE Volatility Index (VIX) and its partner the Nasdaq 100 Volatility Index (VXN) have fallen to levels of “complacency” and that, too, is considered a negative by most technicians.

So what is going on? 

>

Has the stock market topped after the huge run from March to November, or were investors just in a holiday mood with stocks taking a backseat to the festivities of the season?

There is no way to know for sure, but I’m inclined to believe that the post-Christmas pullback was nothing more than a lack of interest in stocks, and the volume figures tend to support that view. The NYSE experienced two of the lowest volume days of the year last week, with trades at less than half the normal level.

Every major index broke out in December, and then pulled back — not an unusual pattern as profit-takers rush to capture the new high prices before year-end. And looking back at trading patterns from September to October of 2008, there is little overhead (possible sellers) until Dow 10,800 and S&P 500 1,180. 

This week, however, could be a see-saw affair as historically the first week of January is a period of testing. With little “new money” for the investment managers to work with until the 15th of the month, stocks could very well meander between the 20- and 50-day moving averages before new fuel arrives to drive the market engine forward again.

Meanwhile it’s probably a good idea to accumulate a small amount of cash to take advantage of bargains that result from any uninformed selling. 

Don’t be fooled by any shallow pullbacks. The trend is up, and the recent breaks to new highs confirm it.

Today’s Trading Landscape

There are no significant earnings to be reported today.

Economic reports due: ISM manufacturing index (the consensus expects 54.8), and construction spending (the consensus expects -0.5%).  

30 Dead Dividend Stocks to Avoid at All Costs
These stocks may look fantastic on the outside, but each and every one of them carries a huge risk of cutting or even completely eliminating their cash dividends. Sell these 30 losers now, and buy the six top picks that are handing investors huge, safe dividend payments instead. If you own even a single dividend stock, this report is a must-read — download your FREE copy here.