Can Stocks Continue Surge or is Slump on Horizon?

Its true that based on a number of metrics, this market is overbought. Price
volatility is extremely low. Small options investors are extremely confident,
maybe even complacent, while large traders are growing increasingly skittish. I
worried about this in a previous blog post. But on the other hand, there are
many positives. We are entering one of the strong periods of seasonality out
there the first quarter of the third year of the presidential term. And breadth
is improving, with the cumulative NYSE advance-decline line pushing to new
highs. Indeed, despite Thursdays mid-day losses for the major averages, as I
write this advancing issues are outpacing decliners by 200 issues. Moreover, key
leading sectors are starting to perk up again. Im seeing early signs of strength
in semiconductors, transports, and retail stocks again after a long period of
underperformance. And emerging market stocks which tend to lead the U.S. market
are coming back to life thanks to the dollars weakness. Heres what it means,
and how to take advantage: Thanks to the holiday travel and winter weather, a
low volume standoff is underway. The bull and the bears are locked in battle
with the Dow Jones Industrial Average closing within a 50 point range over the
past week. But thats set to change soon. The catalyst will be the December jobs
report, which will be released next Friday. So far, weve had every sign that the
economy is improving evidence that supports the bulls case. The only problem,
gleefully pointed out by the bears, is that weve yet to see a turn in the still
terrible job situation. Weve already seen a recovery in corporate profits. Weve
seen a recovery in industrial production. Weve already seen a banking recovery,
with loan losses diminishing and new loan origination perking up. Weve already
seen the credit market heal. And weve also had plenty of secondary evidence to
suggest a jobs recovery is underway. Today, initial weekly jobless claims
plunged to 388,000 the first sub-400k reading since July 2008. Personal income
is up. And payroll withholding tax receipts are up. But we havent seen the
employment rate come down meaningfully or significant additions to payrolls. If
the December report comes in under expectations expect a swift and violent
decline before the uptrend resumes. If the report just meets expectations or
even exceeds them, we could see a quick upward pop that sucks in all the cash on
the sidelines like a flash fire exhausting all the oxygen in the room. I think
the more optimistic scenario is likely and recommend investors focus on stocks
in sectors groups demonstrating relative strength. In the emerging markets,
Brazil, Thailand, and Malaysia all look strong. Related ETFs include the Market
Vectors Brazil Small Cap (NYSE: BRF ), iShares Thailand (NYSE: THD ), and
iShares Malaysia (NYSE: EWM ). The Semiconductor HOLDRs (NYSE: SMH ) and Retail
SPDR (NYSE: XRT ) are also worth a look. Be sure to check out Anthonys new
investment advisory service, The Edge . A special free trial has been extended
to Investorplace readers. Log in using the following credentials: user name:
trial; password: edge The author can be contacted at anthony.mirhaydari@live.com
. Feel free to comment below.