I’m a little distracted today because my youngest daughter is getting married Saturday. Thankfully, the markets are pretty much in a holding pattern right now and there isn’t a lot to write about that I haven’t addressed in previous weeks.

As expected, major market indices have shown an upward bias this week. The Dow set another all-time high while crossing the 12,500 mark. For the year, the Dow is going to post the best return among major indices–something that doesn’t occur often during bull market years.

The chart above shows the Dow as a black line compared to the S&P 500 (blue line) and the Nasdaq (gold line). You can clearly see that the while the other two indices have continued to advance, the Nasdaq peaked in November and has since been losing momentum. Normally money flows away from the Nasdaq toward the blue chip indices when investors become concerned about the strength of the economy. While the economy appears strong now, investors and traders have plenty of things to be concerned about.

These worrisome factors include housing: will prices continue to fall? The war in Iraq: is there a resolution in sight? And even politics: Bush is virtually a lame duck for the next two years. Are we doomed to two years of political paralysis while we wait to see who will win the White House in 2008?

None of these questions will be answered in the next week or two, but for each of the past three years, the first two weeks of January have given investors a thrill ride. That’s the main thing we need to be careful of at the start of 2007. Will stocks resume their upward path, or will we see a sharp correction like January of 2004 and 2005?

Keep a close watch on your accounts and be ready to make a quick exit if necessary.

Have a great New Year’s holiday.

F.S.

This entry was posted on Thursday, December 28th, 2006 at 4:46 pm and is filed under Newsletter. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.