Editor Note: Money Talks highly recommends that you make a regular trip to this monday morning site to this Don Vailoux monday report where he analyses an astonishing 40 to 50 Stocks, Commodities and Index charts and, provides a “Bottom Line” and some very interesting commentary.

– a few of the 40+ charts and commentary below. Full site HERE.

Ed Note: Be sure to read the The Bottom Line below this brief commentary.  A few of the 40 charts below:

What happened during the last 30 minutes of trading on Thursday? At best, the sharp drop by U.S. equity indices looks suspicious. It happened during a time when most traders already were gone for the holiday. A few traders, who knew the location of stop loss orders, probably sold futures down to the trigger points (most likely in the S&P 500 futures market) which, in turn, triggered automatic computerized selling. Weakness in individual stocks, that are part of the Index, was not a factor. An examination of technical action by individual stocks that were part of the Index showed that only three stocks (Ensco, Health Care REIT and Rowan Companies) broke support.

The next major anticipated event is calendar fourth quarter earnings reports Consensus estimates show strong growth in most sectors compared to depressed earnings reported during the same period last year. Consensus for fourth quarter earnings by S&P 500 companies is an increase on a year over year basis of 203%. Excluding the financial service sector, consensus is a year over year gain of 8%. Of greater importance, the reports will include upbeat guidance for 2010. CEOs of major companies like to release upbeat comments when fourth quarter and annual results are released. This year, they will have lots to cheer about. According to Thomson Reuters, S&P 500 profits on a year over year basis are expected to rise 37% in the first quarter of 2010, 22% in the second quarter and 22% in the third quarter.

Technical parameters (Bullish Percent indices, Up/Down ratios, Percent of stocks trading above their 50 and 200 day moving averages, short term momentum indicators) are intermediate overbought. Last week they showed for the first time since October that they are experiencing resistance to additional strength. A correction to 50 day moving averages by major U.S. and Canadian equity indices would not be unusual implying short term downside risk ranging between 2% and 7%. Short term weakness into January will provide an opportunity to add to favoured seasonal positions or to introduce new seasonal trades.

The traditional period for the Santa Claus rally from December 15th to January 6th is approaching an end.
Weather conditions in North America continue to have a temporary negative influence on the economy and equity markets. Economic data for December to be released in January could imply a stall in the recovery due to extraordinary cold and stormy weather.

Seasonal influences in the month of January are mixed at best. During the past 10 Januarys, the TSX Composite has gained an average of 0.40% per period, fifth strongest month of the year. The S&P 500 Index lost an average of 1.63%, third worst month of the year. Other well known North American equity indices did not fare much better. The Russell 2000 Index gained 0.37% per period, the NASDAQ Composite Index slipped 0.14% and the Dow Jones Transportation Average dropped 1.75%. International equity markets also fared badly: The Nikkei Average lost 1.59% per period, the London FT Index plunged 3.31%, the Frankfurt DAX Index gave up 2.00%, the Paris CAC Index fell 2.21% and the Australia All Ordinaries Composite Index slipped 1.00%.

Selected sectors perform well in January. According to Thackray’s 2010 Investor’s Guide, top performing sectors since 1990 (in order of performance) were Information Technology, Consumer Discretionary and Financials. Poorest performing sectors (in order of performance) were Consumer Staples, Utilities and Energy. Please note that the Information Technology sector tends to outperform during the first half of January and the energy sector tends to underperform until the second half of January.

Currency trends will have a significant influence on equity markets. Technicals suggest that the U.S. Dollar likely will remain under short term pressure early in January. That could support U.S. equity markets. However, the U.S. Dollar also has a period of seasonal strength from January to April. Weakness early in January likely will be shallow.

The four year presidential cycle suggests that U.S. equity markets likely will be flat to slightly lower in January and February followed by a significant upside move thereafter. See comments below on the outlook for 2010 for additional comment.

Money flows into equity markets are positive early in January. Year end bonuses and upwardly revised pension contributions add to equity buying.

The Bottom Line
‘Tis the season to adjust equity portfolios! Sectors reaching an end to their period of seasonal strength include gold, natural gas, agriculture, Canadian financial services and (in mid January) information technology. All have been profitable. Watch for technical signs to fine tune exit points. Other sectors are just entering their period of seasonal strength including small cap, silver, platinum and (after mid January) energy. (Ed Note: be sure to check out “An Outlook for North American Equity Markets for 2010” at the bottom of Don’s Website HERE.

The Dow Jones Industrial Average lost 92.04 points (0.87%) last week. All of the loss occurred in the last 30 minutes of trading on Thursday. Intermediate trend remains up. Its 50 day moving average has proven to be a significant support level. Short term momentum indicators are overbought and have rolled over. A test of its 50 day moving average is imminent. Seasonal influences are positive. Strength relative to the S&P 500 Index is negative, typical at this time of year.

The TSX Composite Index slipped 8.50 points (0.08%) last week. Intermediate trend is up. Resistance is at 11,816.33.The Index remains above its 50 and 200 day moving averages. Short term momentum indicators are overbought, but have yet to show signs of rolling over. Strength relative to the S&P 500 Index remains negative, but is showing early signs of improvement. Seasonal influences remain positive.

The U.S. Dollar added $0.10 last week. Short term resistance could be forming at 78.45 and near its 200 day moving average at 79.17. Short term momentum indicators are overbought and showing early signs of rolling over. Year end transaction by international companies placed a short term cap on the Dollar. A short term correction to its 50 day moving average at 76.04 is possible. However, its intermediate downtrend has been broken and the next trend has yet to be determined.

The Canadian Dollar eased 0.23 last week. However, volatility was exceptionally high. Early last week, the Dollar broke above resistance at 96.08 did not hold. Its three month trading range remains between 92.16 and 97.69. Rumors of buying by the Russian and Chinese central banks continue to circulate. Short term momentum indicators are neutral.

Gold and silver continue to show short term technical signs of bottoming. Modest weakness in the U.S. Dollar contributed to the recovery. Intermediate trend remains up. Short term support is forming at $1,075. Short term momentum indicators are recovering from oversold levels. Gold is approaching the end of one of its two periods of seasonal strength. A short term recovery is an opportunity to switch gold into silver.