On the last day of the year, the three major indexes all fell in the wake of profit-taking. The Dow lost 1.14 percent, the S&P 500 lost 1.0 percent, and the Nasdaq lost 0.97 percent. For the year, however, the market’s rebound was remarkable, with the Dow gaining 18.8 percent, the S&P 500 gaining 23.5 percent, and the Nasdaq gaining 43.9 percent.

Last week’s initial claims for unemployment benefits fell to the lowest figure in 17 months, and ongoing claims fell below 5 million for the first time since February. With job losses seeming to stabilize, investors are now looking forward to a labor market that exhibits growth.

But that growth will be accompanied by the fear that the Fed will raise interest rates. Raising interest rates will support the rising value of the dollar. During 2009, the stock market operated in a relationship inverse to the value of the dollar, and the possibility of dollar strength in 2010 carries with it the possibility that the equity market will suffer.

During the upcoming week, investors are likely to see the market relinquish some of last week’s gains as volume picks up following two holiday weeks. Economic data, though, is expected to be largely positive.

On Monday, The Institute on Supply Management is forecast to release an index number of 54, continuing the momentum it has established over the last 4 months.

On Tuesday, December car sales data, with an annualized figure predicted to be at 11 million, will be released. The 2009 full-year figure is expected to be 10.3 million. Also on Tuesday, numbers for November’s durable goods orders are expected to show a gain of 0.5 percent compared to the previous month.

November pending home sales, forecast to show a decrease of two percent, will also be available on Tuesday. The housing market has been supported by the $8000 tax credit to first-time buyers and extremely low mortgage rates. The expiration of the tax credit in April and the possibility of rising interest rates add to the uncertainty in the housing market.

On Thursday, the retail sector will release same-store sales figures for December. Analysts expect the number to be within one percentage point of last year’s, but disagree over whether this year’s sales will show an increase or decrease.

On Friday, the U.S. Labor Department will release its non-farm payroll data for December. Analysts forecast a loss of 20,000 jobs, higher than November’s losses, but partially attributed to seasonal fluctuation.

10 Stocks to Watch

We're watching 10 stocks this week for potential breakouts. Our 10 stocks on the watch list are the following:

AFLAC Incorporated (AFL)
Big Lots, Inc. (BIG)
Coach, Inc. (COH)
Integrys Energy Group, Inc. (TEG)
Johnson Controls, Inc. (JCI)
Mattel, Inc. (MAT)
NiSource Inc. (NI)
Rockwell Collins, Inc. (COL)
Starwood Hotels & Resorts Worldwide, Inc (HOT)
The Walt Disney Company (DIS)
United Technologies Corporation (UTX)

Dave Mecklenburg is the Editor-in-Chief of TigerSharkTrading.com.