After Monday’s explosion through 12-month highs, stocks treaded water yesterday as traders caught their breath and appraised the current state of the market. And their evaluation apparently singled out the financial group as a source of value.

Following an upgrade of Barclays (BCS) by Deutsche Bank, the stock jumped 5.6% and the sector gained 1.7%, while diversified banks gained 2.6%.

But trading started off on the downside when just before the opening it was announced that pending home sales for November were off 16% month-over-month. The figure caught the market by surprise since analysts had expected a decline of just 2%.

Offsetting that news, the Fed said that factory orders for November were up 1.1%, which was above estimates of 0.5%.

The Dow Industrials’ losses were kept in check by an early surge of buying in Kraft Foods (KFT), which gained 4.9% when major shareholder Warren Buffett made a move to block its move to issue shares in order to buy Cadbury (CBY).

Major automakers reported sales for December, but since they met estimates, investors ignored the results. However, Ford (F) did rally 6.6% on news that it saw a 33% jump in December light-vehicle sales in the United States.

At the close, the Dow Jones Industrial Average (DJI) was off 12 points to 10,572, the S&P 500 (SPX) gained 4 points to 1,137, and the Nasdaq (NASD) was breakeven at 2,308.

The NYSE traded 1.2 billion shares with advancers over decliners by a margin of 3-to-2. The Nasdaq traded 656 million shares with decliners ahead by 5-to-4.

Crude oil rose for the ninth consecutive day on Tuesday, with the February contract up 26 cents to $81.77 a barrel, and the Energy Select Sector SPDR (XLE) rose 48 cents to $59.29.

Gold for January delivery rose 40 cents to $1,118.10, and the PHLX Gold/Silver Sector Index (XAU) rose $2 to $176.02.

What the Markets Are Saying

“As goes January, so goes the rest of the year,” has been one of those oft-repeated sayings on Wall Street for decades. If that’s the case, then the year has jumped off to a strong start.

Even yesterday’s mild hesitation is to be expected, as investors study the various possible stock and sector choices before making the leap of faith. Before that leap, traders usually want to know what immediate risks versus rewards there are at the current trading level.

Technicians refer them to the support zones, offering opinions as to the specific numbers that represent that support.

For the Dow, the immediate support starts at the breakout level of 10,550 and has a bottom at 10,240. Within that trading rectangle are both the 20-day moving average at 10,450 and the 50-day moving average at 10,288. A penetration of this zone would be serious enough to have traders liquidate positions at small losses since the near-term trend would be in doubt.

We now know the risk, so what is the possible reward?

First, the market clearly demonstrated by Monday’s action that the bull market has been newly confirmed — the market is in a powerful uptrend. Traders will want to watch specific targets to take profits, like the first area of resistance at Dow 10,500 to 11,150, and then to 11,800. But longer-term investors may wish to hold for even bigger gains since the indications are strong that sometime within the next two years the Dow will reach its former high of 14,280.

Tomorrow we’ll discuss which sectors are strongest and which offer the greatest “value.”  Today’s Trade of the Day will reveal one of the hottest sectors for investment now.

Today’s Trading Landscape

Earnings to be reported before the opening: Acuity Brands, Family Dollar, Monsanto, Northwest Pipe, Robbins & Myers, RPM, UniFirst and Worthington.

Earnings to be reported after the close: Bed Bath & Beyond, Christopher & Banks, Immucor, Orleans Homebuilders, Resources Connect, Ruby Tuesday and SMSC.

Economic reports due: MBA purchase applications, Challenger job-cut report, ADP employment report, ISM non-manufacturing index (the consensus expects 50.4), EIA petroleum status report and FOMC minutes.

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