WaveStrength Market Trends for December 4, 2006
January Effect
By Ann Sosnowski
The December market has two things going for it: a Santa Claus rally and the beginning of the January Effect…
Since 1950, the Dow has gained 1.8% and the S&P has gained 1.7% on average in the month of December.
Taking the past two trading days' market action, the Dow is already up 0.66% and the S&P is up 0.71%.
That's the beginning of the Santa Claus rally.
It's evident that traders and investors alike are on the bandwagon. The Dow Jones Industrial Average is up 104 points today alone, working toward a new high.
Now, the January Effect is a name for when small-cap stocks start to outperform large caps. This small-cap rally begins in early- to mid-December.
This is evident in the past few years' performance of the Russell 2000 (RUT).
December 2005 to January 2006: RUT gains of 7.95%.
December 2004 to January 2005: RUT gains of 3.63%.
December 2003 to January 2004: RUT gains of 10.07%.
On average, that's a gain of 7.22%.
Currently, the RUT is about to break out toward a historic high of $800. This is the perfect time to buy small caps and/or a small-cap index or fund.
In wireless industry news…
Qualcomm Inc. (QCOM:NASDAQ) just bought two wireless companies: Airgo Networks Inc. that works with wireless technology for laptops and hotspots, and RF Micro Devices that specializes in Bluetooth capabilities between cell phones and headsets.
The acquisitions will close by the end of December.
QCOM's stock rose as high as $37.58 per share today, a gain of 2.43%.
QCOM is one of the heaviest weighted companies on the Wireless HOLDRs (WMH:AMEX). The WMH is up 1.37% today.
I've been bullish on the WMH for a long time, but haven't made a move to recommend it to WaveStrength Traders yet, mainly because I want to see sustained support above the index's 200-day Moving Average.
In May 2006 of this year, the WMH made a new 52-week high at $66.38. Currently, it's valued at $62.29.
Just like the Russell-2000, I think you'll continue to see interest in the wireless industry and a new historic high hit on the WMH.
According to Harry S. Dent, Internet, broadband, and wireless technologies are all in the rising part of an S curve and should be reaching 90% market penetration by 2008 or 2009.
If these trends hold true (which they have so far since 2003) holding telecom, wireless, broadband, and any Internet index is in your favor for the next few years.