Wall St Week Ahead: Stocks’ rally set to run as fear fades

By Angela Moon

NEW YORK, Dec 3 (BestGrowthStock) – Europe’s sovereign debt crisis
will still hang over global markets next week, but on Wall
Street, investors will not be afraid to bet on stocks.

Wall Street has shown its ability to hold onto gains, or
quickly recover from losses this week despite Europe’s debt
woes, suggesting that investors are confident of a sustained
rally.

“When things don’t fall apart on bad news, you know that
the market is no longer vulnerable. The overall sentiment is
pretty solid,” said Randy Frederick, director of trading and
derivatives at Schwab Center for Financial Research in Austin,
Texas.

The outstanding put-to-call ratio on index options,
heavily focused on the S&P 500 benchmark, dropped from 1.32
last week to 1.29, showing bullish signs for next week.

The ratio, which is always greater than 1, is the primary
hedging vehicle for institutional investors. The ratio rises
with a market rally as the possibility of a pullback also
increases.

“The ability (to not fall apart) is helping investors
remain upbeat on short-term prospects for stocks. We may not
see this continue until the end of January next year, but the
month of December certainly looks encouraging.”

The CBOE Volatility Index or VIX (.VIX: ), Wall Street’s
so-called fear gauge, fell despite a decline in stocks earlier
in the day as traders saw fewer reasons to buy protection.

The index, which usually moves inverse to the S&P 500
benchmark, strayed from the relationship and closed at its
lowest since April.

The iPath S&P 500 VIX Short Term Futures exchange-traded
note (BARC.L: ) (VXX.P: ) also notched a new year low of $41.51 on
Friday. The ETN, which offers directional volatility exposure,
is based off of the front two-month futures on the VIX.

“There is definitely a trend in the VXX to try to get
short in the ETN,” said Dan Deming, a VIX options trader at
Stutland Equities.

S&P 500 ENDS WEEK UP 3 PERCENT

Fears that Europe’s debt crisis could spiral out of
control have pushed stocks off two-year highs hit earlier this
month. Last week, the S&P 500 was down 3 percent from Nov. 5.

But the index recovered to the early November levels this
week as fears were countered by a spate of healthy economic
data and an upbeat outlook on consumer spending during the
holiday shopping season.

“Europe is kind of its own play now,” said Jeff Roach,
chief economist at Horizon Investments in Charlotte, North
Carolina, adding that investors are starting to brush off the
longer-term macro issues.

On Friday, stocks closed out their best week in a month
with the Dow Jones industrial average (.DJI: ) up 2.6 percent,
the Standard & Poor’s 500 (.SPX: ) up 3 percent and the Nasdaq
Composite Index (.IXIC: ) up 2.2 percent, after shrugging off
tepid jobs numbers for November.

ISM FORECASTS, TRADE GAP ON TAP

Economic indicators next week will be fairly light, with
the Institute for Supply Management releasing its semi-annual
economic forecasts for the U.S. manufacturing and services
sectors on Tuesday. The weekly mortgage data on Wednesday and
jobless claims on Thursday will still get close scrutiny.

On Friday, Wall Street will watch for reports on import
and export prices in November, the international trade deficit
for October, and a preliminary reading December consumer
sentiment from the Thomson Reuters/University of Michigan
Surveys of Consumers.

As the year wraps up, portfolio managers will continue to
chase outperforming stocks and sell some laggards to keep
their balance sheets healthy.

The three-day moving average of stocks hitting new 52-week
highs on the New York Stock Exchange accelerated at the end of
November and is now close to 250, while stocks making new
52-week lows edged down in December and remained slight.

The portfolio managers are “all trying to scramble to
catch up. They have performance risk, they have bonus risk and
ultimately they have job risk,” said Jeffrey Saut, chief
investment strategist at Raymond James in St. Petersburg,
Florida.
(Wall St Week Ahead appears every Friday. Questions or
comments on this column can be e-mailed to:
[email protected])
(Reporting by Angela Moon; Additional reporting by Leah
Schnurr and Doris Frankel; Editing by Jan Paschal)

Wall St Week Ahead: Stocks’ rally set to run as fear fades