Holding Steady

The current stock market can be viewed as a glass half-empty or half-full. The good news is that the Dow Industrials and the Nasdaq 100 broke through major resistance in the last two weeks. The bad news is that broader benchmarks like the S&P 500 haven't kept up, and the leaders are now drifting sideways. The bullish way to spin this is to say that there is obviously not enough selling pressure to push the indices back down, so more upside is only a matter of time. How much time? No one knows for sure.

Tomorrow's unemployment report could break this deadlock, one way or the other. Wall Street economists estimate the report will show the U.S. jobless rate climbed to 4.7%, up from 4.6% the prior month. Traders appear to be hoping for a weak number, on the presumption that higher unemployment will provide further inducement for the Fed to cut interest rates. Anything higher than 4.7% could spark a rally, while a lower number could drive stocks lower.

Among sectors, energy and technology remain the leaders, along with gold and other commodity-related stocks. Utilities and financials are picking up some short-term momentum, but these trends need to develop further before we consider investing in them. Crude oil prices rose today after several days of weakness. A resumed downtrend in the dollar was helpful to energy stocks, and gold rose for the same reason.

Quarterly earnings season is here once again, so you can expect a barrage of corporate news in the next two weeks. The third quarter's results should reveal much more about the extent of damage from subprime mortgages and the housing downturn. As of now, traders seem to believe that the worst of the news is already known. If this is true then any surprises will likely be to the downside. Our indicators continue to grow more bullish for most markets and sectors.