The NASDAQ Composite opened the week with a gap up to 2645 as it appeared after the weekend that the compromise to extend the tax cuts would pass.  That was the high water mark for the week tested only briefly on Friday afternoon before the markets slipped back to close the week with only modest gains. The NASDAQ chart shows the trend is still upward but the failure of the index to breakthrough resistance at Monday's level is disturbing considering the massive stimulus being provided by the tax-cut compromise and the continuation of QE2, which was reconfirmed at the FOMC meeting on Tuesday.


The week's other economic news was also encouraging as US Retail Sales showed solid gains, the Philadelphia and NY Federal Reserve surveys showed continued expansion and initial unemployment claims continued to fall. So why did we not see a bigger gain for stocks?

Well, despite the intended goal of QE2 being to ease credit and keep long term interest rates low, the US consumer continues to deleverage their debt (the NY Times reported the use of credit cards over Thanksgiving weekend was the lowest in 27 years) and mortgage interest rates have climbed above 5% which threatens the housing market where we still have not hit bottom. So although the overall environment is bullish for stocks, and we expect the market will go higher in 2011, the markets will continue to climb a wall of worry over domestic economic prospects.

No new features this week

We are on vacation. This feature will return on January, 8, 2011