Ring in the New Year

Investors are starting to wonder if the year-end rally that normally appears this time of year is going to actually show up. The major indices have been drifting aimlessly low on their 50-day moving averages and the institutional buying patterns have yet to show up.

Major institutions may want to look as conservative as possible going into year-end because of the carnage throughout 2008, which means they are parking their money in Treasuries and selling weak holdings. If that is happening, it could suspend a rally into the first couple of weeks in January.

We are likely to see a barrage of retail, commercial and business bankruptcies across the board. That, on top of continued tight credit markets and the underlying problem that still remains in the derivatives markets, could send the market careening back to its lows. However, on the positive side, we could get renewed enthusiasm with the new administration taking office.

So, as we go into the new year, we're going to take a look at what the market is telling us about whether the recent bailouts, massive interventions from the Fed, manipulated Treasury markets, lower interest rates and the promise of more stimulus to come from the new administration is taking hold.

One of the main indicators that I keep a close eye on for economic and worldwide growth is copper. Copper is a key commodity that is used across the board industrial and commercial operations. It is also a leading indicator of whether the economy is expanding or contracting. Since May of this year, the price has dropped over 70%. I said in my column on Aug. 12, 2008, that copper looked like it was putting in an intermediate-term top and that certainly was the case.

Over the last couple of months, it appears the downward momentum is slowing and the price is possibly building a base. The key now will be for the price to break decisively above the 50-day moving average to give me any encouragement that the massive government stimulus across the world is taking hold.

---

At time of publication, Manning had no positions in the stocks or funds mentioned, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.