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U.S. Market: Will the Strong Start in '06 Last?

In November, I wrote that the US market needed a pause in its bounce off the October lows. The overbought conditions at that time were due for some easing and were prone to year-end tax-loss selling. You'll see that I expected a Christmas rally with follow through confirmation at the start of the New Year.

Well, the Santa Claus rally had to wait for all the presents to be opened, waiting instead for the big one that arrived on January 3 rd. This gift-wrapped package came in the form of words from the Fed's December minutes which suggested that a pause or an end to the Fed's tightening cycle might be coming. Whether you agree with the policy or not, to the stock market this is the best of all worlds: a strong economy matched with healthy corporate balance sheets and the possibility that few Fed Funds rate hikes remain -- it's really no surprise that January has started out with a bang.

Looking at the charts, the break above 11,000 for the Dow is indeed significant, suggesting a potential target in the 12,400 range by my count:

In addition, the NADAQ confirmed its October breakout with a 2280 print last week, making 2720 my price objective:

As I suggested in July, the semiconductors are a key leading indicator; recently, they actually improved further to become one of my favored groups as more individual names have been breaking out of their previously bearish trends. Further, the relative strength for many of these names is increasing and the Point and Figure chart of the sector, as represented by the SOX index, remains in a healthy up-trend:

In addition to semiconductors, a number of other individual sectors look attractive, including gold and base metals, which I just wrote about in a separate commentary (by the way, visit our website to learn more about the exclusive discount we offer on Bullion Vault*, the best way to buy gold online).

For more information about why I consider Point and Figure charts to be most useful or to learn about other favored sectors and how I manage client portfolios here at Delta, call or email me directly anytime. Happy trading in '06!

*Bullion Vault is not a broker/dealer and thus SIPC insurance does not apply and is not available. The Bullion Vault product discount mentioned above is made available merely as a courtesy by Delta Global Advisors, Inc.

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