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Restrained Rally Slowly Emerging

  • Nasdaq 100 MACD buy signal: When the number of Nasdaq 100 stocks on a MACD buy signal exceeds 75%, it often precedes positive price gains. As of late, this figure has been near the 50% level. This has now formed a higher peak. While not yet aggressively bullish, this at least ends what is thought of as "bearish implications." At the very least, this is no longer a negative factor.
  • All of the above confirm my expectations that the markets can grind higher for the rest of the year.

    Still, my expectations for a rally are modest, i.e. a 10% move for the Nasdaq 100. The S&P 500 could run as far as the 1280-90 area. With a bit of luck, the Dow Jones Industrial Average could even see 11,400.

    Beyond New Year's Eve, I become increasingly bearish. I don't see a collapse, but rather a lack of lift in the first quarter. I don't expect the serious trouble until later in 2006.

    But for now, there is a year-end rally in the offing. Enjoy it while it lasts.

    Parting Thoughts

    There's an old saying: I cannot hear what you are saying, because what you are doing is speaking so loudly. That's my take on the Federal Reserve: If it really believes inflation is so "contained" and "transitory," then why is it hell-bent on tightening rates for the rest of our natural lives or until the next recession, whichever comes first?

    The answer, in case you haven't been paying attention, is the robust inflation coursing everywhere through our economy, save for wages and personal income.

    Indeed, real wages are actually down 2.3% for the third quarter. Total compensation costs (wages paid plus benefits) are down 1.5% on an inflation-adjusted basis. That does not bode well for consumer spending into 2006. This comes when the consumer is running increasingly low on dry powder. As we noted previously, the consumer is nearly -- but not quite -- shopped out.

    Meanwhile, actual growth -- and not the estimated, preliminary Commerce Department's GDP data -- remains modest.

    This helps explain why my bullish posture is short term in nature, and measured at that.

    P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
    It's always been my opinion that it pays to have more -- not fewer -- expert market views and analyses when you're making investing or trading decisions. That's why I recommend you take advantage of our free trial offer to TheStreet.com RealMoney premium Web site, where you'll get in-depth commentary and money-making strategies from over 50 Wall Street pros, including Jim Cramer. Take my advice -- try it now.

    Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries, and is a member of the board of directors of Burst.com, a streaming media software company. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback; click here to send him an email.

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