On Friday, analysts pondered last week’s strange movements of the stocks and bond markets. And rising yields on Treasurys throughout the week, while stocks meandered higher, left most questions unanswered.

The drift higher took the Dow’s blue-chip list to a gain of just 28 points for the week. But the gains on Friday were the biggest of the week, up 40 points, and were the result of a gain in the broad-based conglomerate General Electric (NYSE: GE), which jumped 3.4% following a 2-cent hike in its quarterly dividend. 

The S&P 500 and the Nasdaq Composite, however, took both indices to new highs. The S&P ran to a fresh two-year high while Nasdaq soared to a three-year high. 

The U.S. trade deficit for October fell more than 13%.  A rise in exports to China, which surged 30% with a slight drop in imports, were the primary reasons for the favorable news.  But China picked up trade with other nations with both exports and imports at record levels in November.  China’s concerns over inflation have caused it to raise bank requirements for the sixth time this year and the third in a month.

The preliminary Consumer Sentiment Survey for December posted its best reading in six months coming in at 74.2 vs. an expected 72.5.

On Friday, the 10-year benchmark note rose to 3.32%, up from 2.92% on Monday.  The dollar rose against both the euro and yen on Friday with the euro at $1.3229 vs. $1.3243 on Thursday. 

The Dow Jones Industrial Average rose 40 points to 11,410, the S&P 500 gained 7 points, closing at 1,240, and Nasdaq gained 21, closing at 2,638.  On the NYSE advancers led decliners by 1.8-to-1 on volume of 975 million shares.  Nasdaq traded 455 million shares with advancers ahead by 2.2-to-1.

Crude oil for January delivery fell 58 cents to $87.79 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) rose 27 cents to $65.90.  February Gold fell $7.90 to $1,384.90 an ounce.  The PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose $1.24 to $223.45.

What the Markets Are Saying

Worry, worry, worry! Well, perhaps that’s one of the preoccupations of technicians. Last week, I pointed out that our internal indicators were modestly overbought. Now they are just plain “overbought.” And the sentiment numbers are enough to make you want to put your trading money in CDs. 

This week’s Technical Market Insight from S&P’s Mark Arbeter is similarly fearful as he notes, “many bearish divergences with respect to momentum.” And he further opines that “Asian markets look toppy.” He goes on saying, “NYSE new highs put in a lower high this week, and the 10-day summation of up/down volume on the Nasdaq has traced out a lower high and a series of lower highs.” He observes that “the CBOE equity-only put/call (p/c) continues to drop.” Concluding, Arbeter says that, “this is not a great time to be putting money into stocks.”

The S&P 500 struggled to finally hit a new two-year high, and did it on Friday.  However, the Dow Industrials are still mired below a breakout, while the Dow Transportation Average is romping to new highs almost daily, threatening a non-confirmation and a serious potential correction.

Meanwhile, in the midst of gloomy predictions, the Nasdaq, the Russell 1,000 (technology index), and the Russell 2,000 (small-cap index) are knocking the cover off of the ball.  This is very much the way that 2009 ended with a surge in the “lower quality” sectors, which ended abruptly in mid-January with a two-week plunge in the broad market.

If history repeats itself, we have the rest of December to enjoy the party, so sticking with the groups and indices that are moving ahead looks like the right approach. The techs and small-caps are running hard, and the news, with higher consumer confidence numbers, supports the spike. Let’s just hope that the politicians don’t throw a stink bomb into the party room by failing to pass needed legislation to remove the immediate uncertainty of a stalled government.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.