Market Direction Week of January 8, 2017©

Market Direction: BULLISH alert issued 11/10/2016

Last Week Review: Stocks were higher on the week, and the Dow Jones Industrial Average came tantalizingly close to exceeding the 20,000 milestone. And while the Dow fell just short of reaching 20,000, the S&P 500 closed at an all-time high on Friday. Helping stocks march higher was the December jobs report, which showed that the economy added 156,000 jobs in December and average hourly earnings grew 2.9% over the past year, the fastest annual increase since 2009. While the Federal Reserve will watch for other signs of improvement as well, this report supports the committee's view that the economy can handle two to three short-term interest rate increases in 2017 as inflationary pressures rise headed into the new year. More importantly, as wages accelerate, consumption could rise, fueling economic growth.

How the market finished last week, the S&P 500 up 1.7%, the Nasdaq up 2.6%, and the Dow up 1.0%.

This Week: With 2 weeks left until the Presidential inauguration, equities appear to be topping out a bit in the near-term.

It is not uncommon to see some selling at the beginning of the calendar year from those looking to take capital gains and postpone taxes for another year. I thought we might see that occur even more in 2017 because there is a small possibility that tax rates could be cut; yet there has been very little sign of such activity.

However, if this rally is at least partially based on expectations about what the Trump administration will do, those expectations will have to be met beginning on 1/23/2017; the first business day following the inauguration. Downside risk of a small pullback is increasing as that date approaches.

Most of the changes were in a negative direction this week, even though there are still a couple of bullish indicators remaining. While it does appear that the SPX and/or the DJI could set another record high next week, traders should be prepared for at least a small pullback, as the market seems to be in a topping pattern.

Economic Calendar: Consumer Credit (1/9), JOLTS (1/10), PPI-FD (1/13), Consumer Sentiment (1/13), Retail Sales (1/13)

Some of the major earnings announcements on deck: GPN, KBH, BLK, JPM, WFC.

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