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Is Santa Claus Rally Almost Done?
Edward Krudy of Reuters reports, Is Santa Claus rally almost done?:
The Investors But "The Rueckert said "A lot of stocks this When trading Inflation data BULLS IN THE EGGNOG Some see signs of the bulls getting into the eggnog. The American Association of Individual Investors' latest sentiment survey That is often seen as a contrarian indicator. This But gains have "We
"I don't think we're That The In addition, the 3-day moving The Chart-minded "When The 1,120 level, the top of a recent trading range, is seen as strong support. On Friday, the S&P 500 closed at 1,240.40 and was up 1.3 percent for the week. The Dow Jones industrial average .DJI LOOK OUT FOR FED HAWKS An If The "The I Why do I believe that QE 2.0 is not the end of it? Two reasons. First, policy remains reflate and inflate at all cost. The I quote Michael Hudson, economist:
December rally may be reaching its climax, with just two weeks to go
before Santa Claus makes his midnight run. Dwindling volume, excess
optimism, and history all point to a stock market that could be running
out of steam.
appear to have grown complacent as the CBOE Volatility Index, or VIX
.VIX, has fallen to levels not seen since April. Stocks have made new
highs on almost a daily basis. The S&P 500 .SPX closed on Friday at its highest level since September 2008 and the Nasdaq .IXIC scored its best finish since late December 2007, with many expecting gains to run through the end of the year.
Cleveland Rueckert, an analyst at Birinyi Associates in Stamford,
Connecticut, believes the year-end rally may be largely done.
majority of that gain may already have occurred," he said. "Most
people are more likely to be closing out their books at the end of the
month and looking for opportunities to open new positions at the start
of the next month."
that over the last 65 years, when the S&P 500 has rallied at year's
end, the average gain has been 3.4 percent between Thanksgiving and
New Year's. So far, the index has risen 3.5 percent since the start of
the period.
year have had very big gains and it really wouldn't be surprising to
see a lot of the managers close out positions and take some vacation
time," he said.
resumes on Monday, that will start the last five-day trading week
before Christmas. The following week will be cut short by the holiday.
With December 25th falling on Saturday this year, the U.S. stock market
will be closed on Friday, December 24th, in observance of the
Christmas holiday.
for November will dominate next week's economic calendar, with the U.S.
Producer Price Index due on Tuesday and the U.S. Consumer Price Index
set for Wednesday.
shows bullish sentiment reached a four-week high. What's more, bullish
sentiment has spent 14 weeks above its historical average -- its
longest streak in six years.
week, the S&P 500 has broken through closely watched resistance
levels and has climbed for six of the last eight days to close at fresh
two-year highs.
been accompanied by decreasing participation. Average volume during the
last three days of the week was 7.76 billion, well below this year's
daily average of 8.62 billion.
are entering now the beginning of the seasonal pattern where volume
really dries up," said Nicholas Colas, chief market strategist at the
ConvergEx Group in New York. "It seems like it's starting a little
sooner than usual.
at any risk of a meaningful sell-off into the end of the year, but I
think the basic contours of what the economy looks like are pretty well
set," he said.
sentiment was reflected in the VIX, also known as Wall Street's
favorite barometer of investor fear. Although the VIX edged up on
Friday, the index has fallen for six of the last nine sessions. It now
stands at 17.61 after hitting its lowest since April.
15-day moving average of the advance/decline ratio on the New York
Stock Exchange, a measure of the proportion of advancing to falling
stocks, has started to slip and currently stands at around 1.5. It
peaked this year in July at about double that, according to Reuters
data.
average of stocks making new 52-week highs has also turned lower after
a spurt at the start of the month. It now stands at around 125, down
from more than 250 at the start of the month.
breadth and ratios have not been "on board" this rally of late,
according to a report from McMillan Analysis Corp. Equity-only put-call
ratios remain on "sell" signals, the analysts say.
investors are bullish. The S&P 500 has closed well above 1,228,
the 61.8 percent Fibonacci retracement of the 2007-2009 bear market
slide, a key technical level.
a market surpasses a certain retracement level, then the probability
increases of a rise to the next retracement level, which in this case
would be a 76.4 percent retracement and that's a ways up at 1,362," said
Chris Burba, short-term market technician at Standard & Poor's.
ended Friday's session at 11,410.32 and was up just 0.2 percent for
the week. The Nasdaq closed on Friday at 2,637.54; for the week, the
Nasdaq was up 1.8 percent.
agreement to extend the Bush-era tax cuts over the next two years has
started to seem like less of a done deal. The agreement is expected to
be approved by the U.S. Senate on Tuesday, but could face a tougher
road to passage in the House.
the legislation stalls, resulting in higher capital gains and dividend
taxes at the start of next year, then U.S. stock prices could fall.
Federal Reserve's policy-making body, the Federal Open Markets
Committee, will convene on Tuesday for its last meeting of the year. The
recent clutch of stronger economic data could spark a debate over how
far to stretch the central bank's $600 billion stimulus plan, designed
to keep interest rate low through bond purchases.
hawkish members on the Fed may seize on this cluster of strong numbers
and use them to support the argument against" quantitative easing,
said Pierre Ellis, senior global economist at Decision Economics in New
York.
used to analyze all these technical indicators to death. No more. I
don't care how low the VIX is, it could go lower and stay there for a
long time. I believe that institutional and retail
investors should continue buying any dip that comes their way. Look at
November. Everybody thought Europe was going to collapse. Admittedly,
the Irish bailout is not a done deal, and Europe is a mess, but the fact
remains that there are powerful interests that want to see this rally
continue as long as possible.
The Fed and other central bankers will accommodate the global financial
system, providing banks with cheap funds to buy bonds, making an
instant profit which they use to buy higher-yielding risks assets all
around the world. This will shore up bank balance sheets and hopefully
trickle to retail investors who desperately need a wealth effect (but
wealth effect from stocks is much weaker than the one from real estate).
second and more important reason why I believe QE is here to stay is
that the US economy is still at risk for experiencing debt deflation. I
want all of my readers to carefully read Part 3 of an interview posted
on Huffington Post between Michael Hudson the report, and Michael Hudson
the economist. Part 3 is available here (and you can read Part 1 of "My Talk With Michael Hudson" here and Part 2 here.)
The
constraint on this Ponzi scheme was the ability of income to carry the
rising debt. As long as interest rates were falling, a given rental
revenue or equivalent homeowners' value could carry a rising debt. But
once interest rates reached their minimum, by 2006, there was no more
leeway left. Homeowners had to pay debts out of their take-home wages,
which have not risen in real terms for over thirty years now. The debt
charade no longer could be concealed.
This leaves us with the
problem of where we go from here. The Obama Administration's "solution"
is for the economy to "borrow its way out of debt." The Fed is
flooding the economy with credit to get the banks lending again - in
the hope that new mortgage lending will restore high prices (that is,
high housing costs to new buyers), saving the banks' balance sheets.
But
with much of US real estate already in negative equity, banks are not
going to start lending again on a large scale. The government doesn't
want to confront the fact that we have entered a period of debt
deflation. When debtors pay their creditors, they have less to spend on
goods and services. So market demand shrinks, corporate profits fall,
investment declines and unemployment rises.
To mainstream
economists, this is an anomaly. This shows the extent to which
creditor-friendly views have swamped common sense in academic economics
as well as in Congress. It reflects the power of financial lobbyists
to persuade many policymakers to embrace illusion over reality.
I
don't agree with Michael that we've entered debt deflation (at least
not yet), and corporate profits are rising, not falling. And while I do
agree with him on creditor-friendly views swamping common sense in
academic economics, I also know that the financial oligarchs and their
powerful lobbies have a stranglehold on the economy. They get first
dibs, and if there are any crumbs left over, then they'll lend to small
and medium sized enterprises (SMEs). The big banks don't care about
lending to SMEs. They care about profits, which is why they continue
trading aggressively in their capital markets operations. It's liquid
and pretty easy for them to lock in spreads and trade high-yielding risk
assets.
What does this have to do with the Santa Claus rally?
In the short-run, nobody knows how stocks will react. Over on Zero
Hedge, RobotTrader posted a link to Investor's Business Daily Top 100 list.
Should you rush out to buy Priceline (PCLN) at $400+? It could go
higher but the time to have bought PCLN and a bunch of other gems was
back in January/ February 2009 when I wrote about post-deleveraging blues and recommended a few of them.
The
great thing about the stock market is there is always an opportunity,
especially when you have a tsunami of liquidity out there looking for
yield. Don't get too caught up in all these technical indicators or in
the negative macro news environment. At the end of the day, the powers
that be will keep buying the dips because it's all part of the master
plan to avoid debt deflation at any cost.
Will it work? That remains to be seen. If you read Hoisington's interim quarterly update, the US economy is still in a growth recession and monetary policy is ineffective. I quote the following:
Commodity
loans can be financed at 1% or less. This encourages speculative buying
of commodities for inventory, thereby causing food and fuel price
increases. For household's of average means, funds for discretionary purchases are quickly drained.
This is especially evident since the pump price is now at or above $3 a
gallon. A 30-year mortgage rate approaching 5% only serves to
accelerate the downward pressure on home prices - the main source of
household wealth. In short, higher stock and commodity prices are not a
net gain in current circumstances.
So when we
speak of Santa Claus rally, we should qualify it. It's great for the
financial elite making millions in bonuses, but for the average
household struggling to get by, it means absolutely nothing, especially
if the economy keeps hemorrhaging jobs or creates insufficient job
gains. We are not out of the woods, especially on the economy, but
something tells me the stock market will continue climbing the wall of
worry, much like it did back in 2004.
»
- advertisements -
"Don't get too caught up in all these technical indicators or in the negative macro news environment. At the end of the day, the powers that be will keep buying the dips because it's all part of the master plan to avoid debt deflation at any cost...Will it work? That remains to be seen."
So no need to bother with technicals or fundamentals - simply front run the moneymen/PTB. What kind of INVESTING is that? IMHO, it's not. You're trying to pick up pennies in front of a steamroller - and it works as long as you can guess what others will do with much more information and power then you have. Sure, maybe that's worth trading for some, but not for me. At least in Vegas I get known odds, free drinks, and perhaps a comp or two. Buy and hold a stock simply based upon more "reflation"?
I'll tell you what, I'll front run the 'free money' men with my physical PM's, and remove my consent from the Ponzi. No more fees, commissions, or interest from this sovereign. Starve the beast.
You might be right Leo, but you can keep your all-digital, all-fiat world. Hope you don't get stomped by a giant some day...
The next time I hear someone say pick up pennies in front of a steamroller the dickus is going to scream. Is that the new stock phrase of the zero dittoheads? We are always picking up pennies in front of a steam roller. Perhaps some of you have just now noticed the steamroller for the first time. It has always been there.
How about "Plucking bills from a stripper's thong". If she doesn't claw your eyes out, the bouncer will pound you to paste. Sounds just about right. Not sure what the market-related analogies for the Stripper and Bouncer precisely are though.
''Hope you don't get stomped by a giant some day... "
Fear and greed make the market go round and round...
You seem to have felt that way, but my stomping by a giant wasn't a personal comment or a wish upon you or anyone else. You are playing with giants though - sharks. Who might Flash Crash the market in just one day to prove a point. To avoid a Fed audit. They are thinking on levels that you and I don't comprehend. They won't care about you when the time comes to cut you and everyone else loose.
You seem to have totally missed my point. Fear and greed don't make the market go round and round anymore. You admit it in your article. No technicals. No fundamentals. Just money printing. It will work until it doesn't.
But you fail to acknowledge at all that your pennies come at the expense of others. You hope to benefit from the newly printed fiatsco before the next person. The PD's get it first, then perhaps you, and on. Trouble is, by the time it trickles down to J6P, it's not a benefit any more. Gas and food higher. Taxes higher. Wages stagnant. Whether you want to acknowledge it or not, you're benefitting at the expense of others. You just hope to get your some/sum.
Unfortunately, that might be the way our world works at the moment, but I sincerely hope that we can move beyond the 'money-changing' I-get-me-some world at some point in the near future. Might be Utopian of me, but there it is.
You are one of the more astute investors/speculators on this site. Sure "they" might flash crash the market. Run tight stops and buy some puts if you are fearful. I still think fear and greed are working well. There is still a lot of fear out there. Yes it is unfortunate that it is almost becoming a zero sum game, so what should I do about it? I've got to make money for me and mine. I'm sorry about people on fixed incomes, but I got kids to eventually put through Harvard or some expensive place and there is no financial aid for me, only for those on fixed income and the poor people getting trickled upon.
How well will your tight stops work if there is no bid?
traderjoe,
I have written about this wolf market and I'm keenly aware that there are supreme wolves out there thriving on volatility. But the point remains that markets will always be a tug-of-war between fear and greed. That never changes. The difference now is that we reached an important inflection point in financial capitalism. The financial oligarchs will not kill the system that feeds them. Importantly, it is in their interest to perpetuate it as long as possible. Debt deflation is simply not an option. With insanely high unemployment in the US, the last thing we need is a protracted period of debt deflation. I know markets do not go up in a straight line, but the VIX could go lower and stay there for a while as we keep grinding higher. Lots of fresh money from global pensions and sovereign wealth funds will keep propping markets. Forget retail, they are always late to the game, and in my opinion, they're insignificant right now. The Fed will force them to come out of bond funds and speculate on stock funds.
As far as me benefiting at the expense of others, I simply do not see your point. I'm a nobody, a blogger who just writes his thoughts on the internet. The people who are benefiting are the ones pulling the levers. I'm just trying to shed some light on their thought processes.
+1
-You get beat up a lot on here and I certainly do not agree with all you write but I can not disagree with this at all:
"The financial oligarchs will not kill the system that feeds them. Importantly, it is in their interest to perpetuate it as long as possible. Debt deflation is simply not an option. With insanely high unemployment in the US, the last thing we need is a protracted period of debt deflation. I know markets do not go up in a straight line, but the VIX could go lower and stay there for a while as we keep grinding higher. Lots of fresh money from global pensions and sovereign wealth funds will keep propping markets. Forget retail, they are always late to the game, and in my opinion, they're insignificant right now. The Fed will force them to come out of bond funds and speculate on stock funds.
As far as me benefiting at the expense of others, I simply do not see your point. I'm a nobody, a blogger who just writes his thoughts on the internet. The people who are benefiting are the ones pulling the levers. I'm just trying to shed some light on their thought processes."
If the FED is giving away money, why should the kleptocrats be the only ones who get to benefit? Don't they benefit enough already? If I can benefit at their expense all the better. Like Leo, I am a nobody trying to get by picking up a few scraps the kleptocrat lions leave after their feasts....
-Yes, I hate what is going on in the country and the economy and eventually this will likely set up some nice opportunities on the short side, possibly as soon as the second half of January. Anyone buying with a long term time horizon here at current prices is nuts (see Jeremy Granthams writings on this, the price you pay matters when you hold for the long term). That does not mean there isn't money to be made in the short term from this ridiculous POMO & FED & Kleptocrat manipulated market.
All fair comments. To each their own. I do believe we collectively can do something about it. They need us more then we need them. The beauty of it is that my physical PM's represent both my politics and my 'investment' beliefs. I believe they will print, spend, and borrow the dollar into oblivion. For me, the only alternative is to withdraw my consent from the Ponzi. Participating is consent. I do not consent.
I don't think they understand what you are saying. But that is understandable. If they really got your point they wouldn't even BE in this wild-ass market. They are coming from a completely different mind-set. Wearing blinders that prevent a world-view wide enough to see a complete picture is a bitch, eh?
I agree. I'm just here to make money. I can't change the powers that be. I've always said that maybe I'm not positioned right in front of the hose but I can still drink from the mud puddle. This is sunday. Aren't the moralizers supposed to be in church?
volatility bitchez! I live for volatility!
Hey Leo you're up late. Have you read the Thoughts of Another and Friend Of Another at fofoa.blogspot.com/??
yes a stopped clock. that fofoa. expecting gold at 50,000!
...so says another person who missed the precious metals run up.
Leo, no offense intended, but I really and truly don't understand how you were handed a platform on ZeroHedge.
Your being bullish hasn't the least to do with my opinion.
I throw this opinion out into the ether because you are a walking stereotype of a 'perma.'
In this article, you say that you used to use technical data much more intensively, but that you're arriving at (what's most likely) another permabull opinion based on yet another metric or value/data set this time.
It's all the same gobbledygook no matter how you frame it. There's no common sense in your bullish diatribes. None.
And here's just one of what I could have used as many evidence exhibits, stated by you (in your own words), that is your last sentence:
We are not out of the woods, especially on the economy, but something tells me the stock market will continue climbing the wall of worry, much like it did back in 2004.
Really, Leo? "[S]omething tells you" this? What is this something?
Hopium?
Happy Holidays to you and yours.
"tRuth" actually YOU are the one full of 'Hopium' you are the True Believer, who has no further need of evidence, THEREFORE, who has no seeking skeptism, what with KNOWING for sure that LEO is wrong YOU ARE 'right thinking' http://www.amazon.com/True-Believer-Thoughts-Movements-Perennial/dp/0060... http://en.wikipedia.org/wiki/The_True_Believer with THIS mode of thought, YOU CAN FEEL AS IF YOU ARE PART OF THE ZH "choir" you are 'inside' Leo is/should be 'outside'
Happy holidays as well. Listen, you don't have to agree with me, but I remain bullish and no matter what they bring down the road, I would buy the dips. You call it hopium; I call it making money. No offense taken whatsoever.
Buy those solar stock dips, Leo; bet the family jewels!
*I want to rescind my comments about "I don't understand why you were handed on platform on ZH." That was personal, spiteful and bitter, and if you read on, you'll see why I'm sincere in saying that.
Again Leo, I am not trying to make this personal.
But your response that "I remain bullish no matter what the bring down the road" lacks any intellectual support. It's just a statement to support your opinion of future performance.
I am not saying you aren't capable of (nor that you haven't actually done so in the past) supporting such a generalized statement about your future expectations, but you have not done so in this article, at least.
So, I know you're an intelligent person, but you're not making a great case for equity bulls with this one.
the word is out on the street that the big players want the little players to join them in a game of drive the market up. Usually the big players get what the big players want, especially if it appears the government will not stand in the way. No one is going to put on the brakes or take away the punchbowl for a while. This may be a cyclical bull inside a secular bear, but you need to participate. Sure it's a big conspiracy. One last cavalry call in hopes of defeating the deflationary monster before the inflationary monster hits, but now is the last chance. Make some money and be patriotic at the same time.
It is the last dance, but if Dancing With the Stars is any guide ... this could go on for a long, long time
Thse are incredibly interesting times. The fed wants to create inflation because inflation is one of the resultants of a successful and overheating economy. I would like to run a 9.0 hundred. I could do this by having a car tow me at 23 mph. The resulting picture would not be pretty.
There is a huge debate right now about QE2; non-event or entre to hyperinflation? To have a fire one needs fuel, heat, oxygen. To have inflation you gotta have increased money supply (fuel) capacity constraint (heat) and wage pressure (oxygen). In current globalization environment and US economy, probably not gonna be a bonfire.
Possible commodity increases as QE2 funds flow to EM and to commodity margin accounts will cause not inflation, but pressure on profit and competition for scarce household funds. Unintended consequences as the monetary hoppers that are filled are not the same ones that have been drained by the asset writedown deflationary forces.
Meanwhile the savers are mercilessly crushed, the boomers, pressed for time and returns are forced to stick their neck out on the risk rack.
We should probably mark everything to market and start from scratch, but that appears to be too hard. So we will keep patching up the balloon and pumping more gas and keep flying. Everything is fine until the moment when it is not fine. And at that moment it is so not fine that we are left wondering exactly what the hell we were thinking.
bulls always imagine that they ring a bell at the top, well actually they do, but the bulls can't hear it. Only the bears hear it. stock values are where they were before 2008 and the economy is a mere shadow of what is was. But there were a lot, and I mean a lot of day traders who go their heads handed to them in the 90's thinking a tight stop was the answer to everything. not when the bid dries up, and running this market on margin. the only thing I wonder, is if the market craters will the NYSE simply cancel the trades? we live in that sort of world. but then no one will trust the money any more, (see velocity) and no pressure, no volume. go long only if you're playing with someone elses money and you have an unlisted apartment in Central American someplace.
Yes sir,
This time the oligarchy has it just right, the markets will go up because it is easier to change perception than it is to influence reality. Trade the markets and make money, all is well. Step right up, everybody wins.
Put/call ratios getting to extremes:
http://clearstation.etrade.com/cgi-bin/bbs?post_id=9581417
As usual, both Tom O'Brien and David White at TFNN.com think we are about to crash:
Friday's podcasts:
David White:
http://www.tigeruniversity.com/mp3/PTH121010.mp3
Tom O'Brien
http://www.tigeruniversity.com/mp3/TOS121010.mp3
Gary Kaltbaum disagrees, he says he's getting flooded with e-mails from guys who want to short:
http://archives.warpradio.com/btr/InvestorsEdge/121018.mp3
Yep....On the surface everything is overbought and sentiment is at bullish extremes (and I certainly do not dispute this) and that is clearly something to take very seriously into ones trading strategy for next week. At the same time, this brings out the bears to short the market...Do the indicators tell the whole story? Probably not. Will we correct? probably, at some time. Next week is options expiration week. It is also another huge POMO week.
http://ExploitTheMarket.com
The S&P 500 can give up all of its gains for the month, but until the trendline is taken out, this bull market remains intact.
http://stockcharts.com/h-sc/ui?s=$SPX&p=M&yr=10&mn=0&dy=0&id=p08146336170&a=217070644
The previous trendline got taken out in early May (courtesy of the Flash Crash), and we had a 3 month correction.
But the S&P 500 HAS TO close out the month well above April's high. Just because it's above it now, doesn't mean much. A correction the last two weeks of the year can easily negate 25-30 points. And yes we are overbought and sentiment is overbullish.
JMO