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Investor Sentiment: Santa Claus Rally

thetechnicaltake's picture




 

If you look hard enough at the charts, you might be able to see the infamous Santa Claus pattern. It is a price pattern, similar to the cup and handle or maybe it is the head and shoulders, that looks like a rotund person with a white beard in a baggy, red suit. If you are having trouble seeing the Santa Claus pattern don't worry many investors are having trouble too. But keep looking because it is December and it is the "end of the month". And these things magically appear -- just like that when you least expect it. Yes, there seems to be a lot of hope riding on the rotund man in a sleigh, and that is about the best I can say about this market. I am not so sure hope is such a good strategy, but I guess hope is better than nothing. At least it is a strategy.

Outside of hope, I would not look to the sentiment picture to see where the buyers are coming from. The "dumb money" is neutral, and the Rydex market timer is modestly bullish. There won't be short covering to add fuel to any rally. Company insiders are not committed either. Where are the buyers going to come from? Maybe Santa knows.

The “Dumb Money” indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator shows neutral sentiment.

Figure 1. “Dumb Money”/ weekly

 

Figure 2 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: "A sell bias continued across the market as our Industry Score, our main indicator of prevailing sentiment, fell to its worst level in a year. This was the result of a build of negative sentiment that began at the end of October, was interrupted by a nice burst of buying/drop in selling in late November, and followed up by an increase in selling since the beginning of the current month. Week-over-week, there was a demonstrable drop in the number of sellers and overall the conviction displayed by sellers lessened. There was, however, a marked increase in the number of actionable sells, an interesting development considering the relatively high level of selling this quarter but not entirely surprising at the end of the calendar year, when insiders - like other so many other Americans - are trying to figure out tax strategies."

Figure 2. InsiderScore “Entire Market” value/ weekly

Figure 3 is a weekly chart of the SP500. The indicator in the lower panel measures all the assets in the Rydex bullish oriented equity funds divided by the sum of assets in the bullish oriented equity funds plus the assets in the bearish oriented equity funds. When the indicator is green, the value is low and there is fear in the market; this is where market bottoms are forged. When the indicator is red, there is complacency in the market. There are too many bulls and this is when market advances stall. Currently, the value of the indicator is 57.94%. Values less than 50% are associated with market bottoms. Values greater than 58% are associated with market tops.

Figure 3. Rydex Total Bull v. Total Bear/ weekly

Let me also remind readers that we are offering a 1 month FREE TRIAL to our Daily Sentiment Report (formerly Premium Content), which focuses on daily market sentiment and the Rydex asset data. This is excellent data based upon real assets not opinions! We have a new 1-click sign up process! Credit cards are not required.

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Mon, 12/19/2011 - 10:15 | 1993793 SheepDog-One
SheepDog-One's picture

Face it, theres no extraordinary retail sales activity going on out there. Santa Claus Rally R.I.P.

Mon, 12/19/2011 - 01:16 | 1993280 bill1102inf
bill1102inf's picture

i thought you said Martinis

Mon, 12/19/2011 - 00:03 | 1993074 jack stephan
jack stephan's picture

Raoul Duke: Who are these people? These faces? Where did they come from? They look like caricatures of used car dealers from Dallas, and sweet Jesus, there are a hell of a lot of them at 4:30 on a Sunday morning. Still humping the American dream.

Mon, 12/19/2011 - 00:02 | 1993068 Randall Cabot
Randall Cabot's picture

No Santa Claus in Asia today.

Sun, 12/18/2011 - 23:48 | 1993021 Goldtoothchimp09
Goldtoothchimp09's picture

'Santa Claus rally' only applies to 7 trading days...i'm beyond tired of everyone referring to the entire month of December as santa rally time!

Mon, 12/19/2011 - 10:11 | 1993781 SheepDog-One
SheepDog-One's picture

Oh ok, so santa Claus Rally starts right NOW then?

Mon, 12/19/2011 - 14:00 | 1994698 Goldtoothchimp09
Goldtoothchimp09's picture

Nope...santa claus rally period is Dec. 23 or 26 thru January 3rd this year.  I 'm not positive if Dec. 23rd is part of it or not -- i need to clarify.

Sun, 12/18/2011 - 20:26 | 1992410 benslawyer
benslawyer's picture

When the bottom lines appear for this quarter, Santa might rethink his free shipping policy!  My latest purchase of a $78 item (lowest price online) came with a $37 gratis shipping charge.  Online retail sales might be up, but at what cost?

Sun, 12/18/2011 - 20:35 | 1992432 SAT 800
SAT 800's picture

Not sure where to post this; but this is a thread about trading. You can buy the Mar. Eur/USD contract on the CME right now; it'll have an upward bias for 150-200 points due to the short interest pointed out by Tyler in a previous article. This is a very high probability trade; the chart formation for the bottom is beautiful. Globex is open right now.

Sun, 12/18/2011 - 22:50 | 1992748 azusgm
azusgm's picture

"on the CME"

Danger, Will Robinson.

Sun, 12/18/2011 - 19:38 | 1992353 Saxxon
Saxxon's picture

1. Holiday week with low volume coming;

2. Record short EUR\USD position if I read that Friday article correctly.

We could rally.  I am 1/3 long gold, the rest cash.  Not much commitment.

Sun, 12/18/2011 - 20:59 | 1992547 covert
covert's picture

rally not coming soon.

http://covert3.wordpress.com

 

Sun, 12/18/2011 - 21:07 | 1992577 SAT 800
SAT 800's picture

The author is a very strange chart reader; the S&P500 chart shows an upward forty five degree channel; it will continue to rally into March.

Mon, 12/19/2011 - 10:17 | 1993801 somethingisrotten
somethingisrotten's picture

Have another drink, you angle reference is a bit off.

Mon, 12/19/2011 - 10:12 | 1993785 SheepDog-One
SheepDog-One's picture

So youre all-in here then?

Sun, 12/18/2011 - 19:12 | 1992293 I got the Bull ...
I got the Bull by The Horns - HELP's picture

Fellow ZH's, If you are relying on a Chinese internal bailout of its economy I would not hold your breath. The pump priming of the Chinese economy has gone astray. An email from a contact in China: "At this present time, I work as a Foreign Supervision Group 1 Leader, on a construction of a 40km (out of 60km) long section of High Speed Railway (HSR), between Hefei and Fuzhou in China. There are problems here ranging from rampant corruption, to piss-poor quality of work, and even worse safety standards, and the government has almost stopped the funding to 90% of these projects, mainly because of it, and is trying to sort it all out. The Minister of Railways, and his deputies, were jailed last February for embezzling over 24 billion US $!!! Because of these uncertainties, and also other issues, I'll, most probably, be leaving China early next year, "

Mon, 12/19/2011 - 10:59 | 1993930 FMR Bankster
FMR Bankster's picture

I think most investors (not ZH's though) have moved beyond the China story as bailout for the world. Bad news from China, India, Brazil and other emerging countries doesn't provide enough lift for the market. As attention has moved to Europe most bulls seem to be focused on the aliens with bags of money theory to move the bull market forward.

Sun, 12/18/2011 - 21:14 | 1992600 StychoKiller
StychoKiller's picture

Reporter:  "Willy, why do you rob banks?"

Willy Sutton:  "Because that's where the money is."

Put out enough honey, and all kinds of flies will show up.

Sun, 12/18/2011 - 19:04 | 1992272 e2thex
e2thex's picture

What is a Santa Claus rally? 

Can you explain this in TA terms? Distribution?  Short-covering? R U saying that if the shorting persists the MMs will take the market down regardless, and, let people make money off of them?

You know for a fact the ingredients are no longer there without waiting for post midnite action? R U sure?

 

Sun, 12/18/2011 - 18:33 | 1992245 John Law Lives
John Law Lives's picture

It will be interesting to hear how retailers are doing since Black Friday.  I hear that retail sales have dipped BIG since then.  December retail sales may prove to be anemic.  That doesn't mean The Machine won't manufacture a rally.  I fully expect FT to launch another big rumor (or two) before the year ends.

Sun, 12/18/2011 - 18:07 | 1992215 disabledvet
disabledvet's picture

trucking is an all cash business. a collapse in oil prices followed by a solid surge in the greenback due to a "confidence failure" would be a Christmas gift indeed.

Sun, 12/18/2011 - 17:50 | 1992191 Boilermaker
Boilermaker's picture

Another god-awful and pointless contribution from thetechnicaltake.

Sun, 12/18/2011 - 21:10 | 1992591 SAT 800
SAT 800's picture

It's very strange, because he has no idea how to read charts. The number one pick for a stock to hold for ten months; the dividend in paid in Sept.; is ABB. It's beat up by the market, and by nothing else. Buy it on two to one margin available from your broker. You'll beat the shit out of inflation, money market funds, CD's and the averages. Beta will become evident. Very, very, low risk trade. Target is $24.50; (always sell too early, like JP Morgan).

Mon, 12/19/2011 - 07:21 | 1993569 jeff montanye
jeff montanye's picture

i am a particularly poor tactical investor, so am hesitant to critique tech take.  however i appreciate his charts and basic explanations.

is the abb referenced the computer company with the 3.84% yield? if so i see where it is powering the first facebook data center outside the u.s.  also something about breaching support levels.  is this current or important?  http://www.google.com/finance?client=ob&q=NYSE:ABB   

Sun, 12/18/2011 - 17:23 | 1992140 Randall Cabot
Randall Cabot's picture

 

 

Here comes Santa Claus, here comes Santa Claus, right down Santa Claus Lane...

 

Holiday-season online sales up 15% from year ago

 

http://www.marketwatch.com/story/holiday-season-online-sales-up-15-from-year-ago-2011-12-18?link=MW_home_latest_news

 

NEW YORK (MarketWatch) — Americans spent nearly $31 billion shopping online this holiday-shopping season, an increase of 15% from the year-earlier period, research firm comScore said Sunday.

Sun, 12/18/2011 - 19:07 | 1992281 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

Inflation adjusted or just BS?

Sun, 12/18/2011 - 19:00 | 1992270 sun tzu
sun tzu's picture

I don't doubt it. Everyone I know under the age of 50 makes almost all of their non-necessities purchases online these days, and it has nothing to do with Christmas.

Sun, 12/18/2011 - 17:41 | 1992169 ebworthen
ebworthen's picture

No doubt.

I'd bet that brick and mortar are down 15%, along with State sales tax receipts.

If you own Best Buy SELL.

Sun, 12/18/2011 - 17:35 | 1992165 sosoome
sosoome's picture

short shopping centers

long ups

Sun, 12/18/2011 - 16:47 | 1992092 ebworthen
ebworthen's picture

Retail investors throwing in the towel.

Fund managers cashing out commodities to make the end of year not so horrible.

Debt still being used to solve a debt crisis for insolvent banks and sovereigns.

Earnings will be down, unemployment up, "austerity" up, contraction and recession continues.

Santa doesn't want anything to do with the markets or the likes of Corzine, Mozillo, Ben, Timmy, or any of the other clowns.

Sun, 12/18/2011 - 16:44 | 1992082 PulauHantu29
PulauHantu29's picture

"The Twilight of Illusion" chapter in Galbraith's classic book The Great Crash of 1929 is a good, if not scary, read.

Sun, 12/18/2011 - 12:09 | 1991500 Georgesblog
Georgesblog's picture

They might need to hire David Copperfield to pull this one off. An end of year rally would be an illusion, fed by strong delusion. There doesn't seem to be much sentiment, or resources for that matter, to support any significant volume. It's a lot harder to get the lemmings moving toward the cliff, these days

http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/

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