Bull market rally extends into the New Year

Market observations for the week of Jan. 3 to Jan. 7, 2011

Claymore Investments, Inc. 12 January, 2011 | 11:52PM

The major market indices in the United States kicked off the new year on a positive note. The gains reflected strong carry-over momentum from December and further signs the economic recovery is gaining traction. December saw the S&P 500 return more than 6.5%, which accounted for better than half of the 12.78% appreciation for the full year. On a total return basis, which includes dividend income, the S&P 500 gained 15.1% in 2010. The bull market rally that began in March of 2009 remains intact and has so far resulted in the S&P 500 posting gains of almost 88% since the March 2009 trough.

Adding to the positive sentiment last week were favorable seasonal trends (the January effect), anticipation of strong fourth-quarter earnings (earnings season kicks off this week) and tentative signs that retail investors are starting to reenter the equity markets after an almost two-year hiatus.

With that said, the strong advance over the past several weeks has left the market in a technically overbought condition and has raised the odds that a period of consolidation could develop. While a near-term corrective phase wouldn't be surprising, any pullback will likely be shallow and short-lived and should be chalked up as a round of profit taking and not the start of a major trend reversal.

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Claymore Investments, Inc.

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