Earnings season had a decent start last night with the AA earnings beating estimates. While the stock was down today on valuation concerns, the good report kept the tone positive in the overall market. Trading was rather quiet for a second day. 

Risk FX rallied ahead of the Portuguese auction due at 10:40 GMT today with EUR/USD breaking above the 1.3000 barrier in early morning European trade as  sentiment in the credit markets improved slightly. Irish, 

As we enter 2011 three key themes are likely to dominate trade in the currency market. 

The oversold rally continued today. The December pending home sales data, which showed a slight increase from November, and news that homebuilder (DHI) actually made a profit in its latest quarter injected a positive mood into the market. After opening nearly flat, stocks claimed throughout the day. All three major indexes closed near their intraday highs. The DJIA finished 111.32 points (+1.09%) higher at 10296.85. The S&P 500 rose above 1100, up 14.13 points (+1.30%) to close at 1103.32 while the NASDAQ added 18.86 points (+0.87%) to 2190.06.

The rebound in GDP however positive unfortunately came about primarily due to a rise in consumer spending helped along by various government subsidies such as “cash for clunkers” and tax credits for homebuyers. Both these subsidies have now been removed and the big question going forward is weather higher consumption can be sustained without government support.

After a tentative snapback rally yesterday, the stock market got spooked today as it gave up all of yesterday's gain and more. Drops in both September personal income and spending reminded investors that yesterday's 3.5% GDP growth number was probably due to temporary government stimulus programs and that the economy might have deteriorated toward the end of the third quarter. Fear escalated as VIX jumped nearly 6 points to 30.69, the highest since early July. The heightened volatility was reflected in price movements. The DJIA finished down 249.85 points (-2.51%) at 9712.73. The S&P 500 tumbled 29.92 points (-2.81%) to 1036.19 while the NASDAQ slid 52.44 points (-2.50%) to 2045.11. All three major indexes dipped below their respective 50-day moving averages at the close.

Dow Jones Industrial Average (DJIA) components International Business Machines (IBM), Bank of America (BAC), and General Electric (GE) delivered earnings that left traders wanting and stocks retreated as a result. IBM beat expectations but encountered sellers after running up 10 points in advance of its earnings announcement. BAC and GE simply disappointed. Their numbers reinforced the notion that individuals and businesses are still struggling with their debt loads. Google (GOOG) beat handsomely but that was not enough to save the NASDAQ from sliding.