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After The Close - The first day of the new trading week saw some modest profit taking on Wall Street after last week’s big push higher following an agreement in Washington that avoided automatic tax hikes from kicking in on January 2nd. Perhaps behind today’s mild sell off—though the market did work its way back some off earlier lows—was the realization that the next two months will likely bring some contentious bargaining between the two parties on Capitol Hill on both spending cuts and the debt-ceiling limit. The lack of any major news on either the economic or the earnings fronts probably had investors focusing once again on Washington.

We had opined here late last week that we would not be surprised if there was a bit of profit taking in a market that is clearly overbought at this moment. The S&P 500 Volatility Index (or VIX) finished below 14 today, a level that suggests buying has become overheated in the recent weeks. We expect the market to meet some near-term resistance—the broader S&P 500 Index finished last week at 1,466, a five-year high for the index—especially if the forthcoming earnings season (more below) is not supportive.

The major equity indexes all finished today’s session in the red, with the Dow Jones Industrial Average, the NASDAQ, and the aforementioned S&P 500 Index down 51, three, and five points, respectively. The NASDAQ’s percentage decline was much more modest than the others, as technology stocks fared a little better than some of the other major groups. Technology got a big boost from the shares of online retailing giant Amazon.com (AMZN), which jumped on an upgrade from a major brokerage house. The move higher by Amazon stock helped to somewhat offset mild weakness in the shares of technology behemoths Apple (AAPL) and Google (GOOG).  All in all, it was mostly a red ink day for the 10 major sectors.

On the Continent, the major bourses also finished the session lower. London’s FTSE, Germany’s DAX, and France’s CAC-40 fell 0.4%, 0.6%, and 0.7%, respectively. However, the financials were among the best performers across the euro zone after regulators said that new Basel III rules governing banks will not be as strict as previously anticipated, and will also not go into full effect until 2019. The original plan was for the new regulations to go into effect on January 1, 2015.

On the homeland, financials also were in the news today. Specifically, federal regulators reached an $8.5 billion settlement with ten banks over foreclosure abuses stemming from the so-called robo-signing scandal. The deal is expected to help more than 3.8 million borrowers. The banks involved included heavyweights Bank of America (BAC - Free Bank of America Stock Report), JPMorgan Chase (JPM - Free JPMorgan Stock Report), Wells Fargo (WFC), and Citigroup (C). 

Looking ahead, the eyes of the investment community will begin to turn toward the fourth-quarter earnings season, which officially kicks off after tomorrow’s market close when Dow-30 component Alcoa (AA - Free Alcoa Stock Report) reports its latest quarterly results. Our sense is that the next three weeks of earnings reports will have a big say in what direction the market heads, as in addition to the latest results, many companies will be issuing guidance for the full-year 2013, and that will, most likely, set the tone for equity analysts and traders. As for the economy, save for Friday’s report on the international trade gap, it will be a very slow week, but that also changes quickly next week.   - William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned. 

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12:30 PM EST - The U.S. stock market opened off this morning, attempted to pare its losses, but is now headed lower again. As we pass the noon hour in New York, the Dow Jones Industrial Average is off 80 points (-0.6%); the S&P 500 Index is lower by nine points (-0.6%); and the tech-heavy NASDAQ which was showing some relative strength earlier, is now off 11 points(-0.3 %). Market breadth is negative, as declining stocks are outnumbering advancers on both the NYSE and the NASDAQ. Most of the market sectors are in negative territory, with notable weakness in the consumer cyclical, utilities, and energy areas. On balance, the healthcare and technology issues are holding up well.

Technically, the S&P 500 Index has been consolidating, after logging a couple of big moves up. This is not surprising, and is likely healthy, as it allows some profit taking, but more important helps traders get comfortable with the market’s current level.  Notably, the S&P 500 is now at 1,460, and just about 1% below its 52-week high of 1,475. Often, an index can encounter some resistance moving past a prior high point, and a few such rally attempts may be necessary. The VIX is rising a bit today, suggesting that traders may be feeling a bit more apprehensive.

Traders received no notable economic news today, and that may also be contributing to a lack of clear direction in the market. Tuesday and Wednesday will be light days, as well.  But, things pick up again on Thursday, with the weekly jobless claims data, as well as the November Wholesale Inventories report. On Friday, we get a look at the nation’s trade balance, and import and export prices. 

Meanwhile, traders will be concentrating more on the upcoming fourth-quarter earnings season. Notably, Dow component and bellwether industrial Alcoa (AA - Free Alcoa Stock Report) is set to kick of the party, when it issues its results tomorrow. Importantly, over the next few weeks many companies will be issuing guidance for the full-year 2013, and that will, no doubt, set the tone for equity analysts and traders. There have been a few newsworthy developments today. Bank of America (BAC - Free BofA Stock Report) stock has been a bit volatile after the company agreed to a settlement with mortgage giant Fannie Mae. Shares of Commercial Metals (CMC) are trading higher after the company announced a better-than-expected quarterly profit.  - Adam Rosner

At the time of this article's writing, the author had a position in Alcoa (AA).
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Stocks to Watch from The Survey Corporate news looks to be fairly light today, though there are a number of stocks that will likely see active trading when the market opens. Shares of Illumina (ILMN) are down sharply ahead of the bell, after Franz Humer, the Chairman of drugmaker Roche, said that his company was no longer pursuing a deal to acquire the medical supplies company. Roche had approached Illumina with a buyout offer last year, but was turned down. Elsewhere, shares of Bank of America (BACFree Bank of America Stock Report) are up modestly in pre-market trading, after the bank, which is also a Dow-30 component, said that it has reached a $10 billion settlement with Fannie Mae regarding mortgage repurchases. – Matthew E. Spencer 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Before The Bell - We shortly will begin a new week on Wall Street--the first full five-day week of the new year--with the bulls seemingly in full charge. This clear reassertion of prominence follows a dramatic holiday shortened week of almost unrelenting gains, including the 308-point surge in the Dow Jones Industrial Average on the first day of trading in the new year.

Behind this dramatic upward move was relief that the White House and Congress had signed off on a new tax package that extends the very popular Bush-era tax reductions for all those individuals making less than $400,000 a year and couples earning below $450,000 over a 12-month stretch.

However, as we look beyond the mere headlines, there are some areas of concern for the bulls, including a 7.8% jobless rate that seems to be impervious to any major new reductions, an approaching corporate earnings season that has low expectations, an uneven aggregate business expansion, and, perhaps most daunting, the fresh battle lines being drawn on the remaining budget issues.

In truth, the tax agreement merely "kicked the can down the road'' to use a popular euphemism; it did not attack the major budget issues, which now center around the mandatory spending cuts, or sequestrations, that are set to go into effect late next month. Solving that contentious fight, and securing an increase in the nation's borrowing limits, or a new debt ceiling, will prove to be even more daunting, we sense, if the political pundits are correct.

How we get to this next agreement, which the Senate Minority leader said yesterday would not include any fresh tax increases, will be a test that may well need to be passed to keep this impressive bull market rally going. For our part, we are cautiously optimistic, but also sense that plenty of hard work lies ahead before the market can make all-time highs, most notably the Dow. Still, with the Standard and Poor's 500 Index already at a five-year peak, there would seem to be plenty of ammunition still left for the bulls. That said, with the Volatility Index, or the so-called VIX, at just 13.83, and thus within increments of its 52-week low of 13.30, there would also appear to be an excess of complacency around, which could spark some selling in an overbought stock market at any time.

As for the markets this morning, the European bourses are all a bit lower, with the London FTSE 100, the Frankfurt Dax, and the Paris CAC-40 off by about a half a percentage point each, while on our shores the equity futures paint a mixed-to-lower picture with less than an hour to go before the start of the new trading day.

Finally, this promises to be a quiet news week on the economic front, with data on weekly jobless claims (Thursday) and the international trade balance (Friday) being the major reports at hand. – Harvey S. Katz  

At the time of this article's writing, the author did not have positions in any of the companies mentioned.