Investors expected to lock in rally's gains

New York: US stocks could face difficulty gaining traction this week as the S&P 500 bumps against the 1,100 mark and investors become content to cool their heels rather than risk losing gains made for the year.

With the vast majority of corporate results already reported, market watchers are casting around for the next catalyst to drive stocks. That will put this week's round of economic data in the spotlight, including retail sales, the Consumer Price Index and housing starts.

The equity market's 60 per cent rise from 12-year lows hit in March reflects optimism for improved demand in coming months. But the path out of the recession is a bumpy one. Investors are trying to strike a balance between improved corporate outlooks and the consumer's slow recovery due to a weak labour market.

"We've seen a pullback in buying, but there's not really any conviction from the sellers either," said Jeff Kleintop, chief market strategist at LPL Financial in Boston. "I think we're in no man's land here."

After beginning the year at around 900, the S&P 500 faces major resistance at the 1,100 barrier. The broad index has been unable to close above that mark this year, despite four intra-day attempts. But a decisive close above the psychologically important level could be seen as a buy signal.

"This area was resistance last month and was trouble again," last week, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio.

"Nonetheless, we expect this level to eventually give way and usher in another wave of buying."

Volume will also be a test of the strength of any breakout. Of late, volume has been weak on days the market has been up, which is "always an indication that conviction is not there and the market is subject to a pullback", said Quincy Krosby, market strategist at Prudential Financial in Shelton, Connecticut.

Low trading volume also makes it easier to push the market around and can increase volatility.

With last year's slaughter in the stock market still clearly in mind, investors appear to have turned more cautious in recent weeks, unwilling to give up any gains they've made back this year.

S&P turnaround

The S&P 500 is up 21.1 per cent for the year so far, a vast improvement over last year's 38.5 per cent plummet that was the worst year for stocks since the Great Depression.

What is more, investors fortunate enough to have ridden the rally from March's bottom have seen the S&P 500 jump 61.6 per cent as of Friday's close.

"There is a perception that managers are locking in their gains and the ones that have reached their performance targets don't want to go out there and take any chances," Krosby said.

"A lot of investors missed the run from the March 9 low, be they retail or institutional, and they're playing ‘catch up.' They're trying not to miss the entirety of one of the great bull markets in history," said Joe Keating, chief investment officer at RBC Bank Investment Management in Birmingham, Alabama.

The coming week's menu of economic indicators includes October data on retail sales, the Producer Price Index, industrial output and capacity utilisation, the Consumer Price Index and housing starts. Weekly claims for initial jobless benefits are also expected.

Although 93 per cent of S&P 500 companies have reported earnings, a handful of retailers will release results this week, including Target, Gap, Dow component Home Depot and rival home improvement chain, Lowe's.

Federal Reserve chairman Ben Bernanke will speak on economic conditions in an address to the Economic Club of New York on Saturday.