What the market does over the next few days will give a clue as to the rest of the year, according to Jeffrey Hirsch (Stock Trader’s Almanac): “S&P gains during January’s first 5 trading days preceded full-year gains 86% of the time.”

He also draws attention to the so-called “January Barometer” which states “as the S&P 500 Index goes in January, so goes the year." ... “The January Barometer predicts the year’s course with a .741 batting average. 12 of the last 14 post-election years followed January's direction,” said Hirsch. Also, the “ninth” year of decades is generally an up year for the stock market with the Dow Jones down only 3 times in the last 12 decades.

The table below shows the key resistance and support levels for the major US indices. With most global indices having breached the 50-day moving average (and after year-end also having taken out the December peaks), the next target is the November 4th highs, followed by the key 200-day average. On the downside, the December 1st (not shown on table) and the all-important November 20th lows must hold for the uptrend to remain intact.

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In my opinion, selective buying in global markets is in order, and ’09 may turn out to be a good year for a discerning stock picker. However, make sure to separate the wheat from the chaff because many companies will fall by the wayside during the new year. (Also see “Six Measures of Market Internals” and “Video-o-rama: Ring out the old, ring in the new” for more discussion of the outlook for stock markets in 2008.)

Economy

“Overall business confidence improved just a bit at the close of to 2008, but remains very dark with hiring intentions and expectations regarding the outlook in mid-2009 dropping to record lows,” said the latest Survey of Business Confidence of the World conducted by Moody’s Economy.com. The Survey results indicate that the entire global economy is solidly in recession.


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Further evidence of the worldwide economic crisis came from the Semiconductor Industry Association, reporting that global sales of semiconductors declined by 9.8% in November compared with a year ago, and by 7.2% since the previous month.

Data reports released in the US during the New Year week mostly confirmed the dismal economic outlook.
 

• The Institute for Supply Management's Manufacturing Index is still contracting and fell by a larger-than-anticipated 3.8 points to 32.4 in December. The index is at its lowest level since 1980, with the forward-looking details also downbeat as new orders plunged to their lowest level since January 1948.
  
  
• The S&P/Case-Shiller Home Price Indices reported record annual declines, with the 10-City and 20-City Composite Indices falling by 19.1% and 18.0% respectively.
  
  
• The Conference Board’s Consumer Confidence Index declined in December to a historic low of 38 – down by 6.6 points from November's 44.7. With consumer confidence in a perilous state, the outlook for spending appears dismal.
  
  
• Initial jobless claims decreased by 94,000 to 492,000 for the week ended December 27. Fewer-than-expected claims were filed, but holidays have been known to be more volatile for this indicator. Overall, labor market trends suggest persistent weakening.
  
  
• The ECRI Weekly Leading Index increased from 106.8 to 108 during the week ended December 26th, but does not alter the Index's overall downward trend. The meaningful decline in the ECRI indicates a severe slowdown that could last deep into 2009.