This page has been archived and commenting is disabled.

Guest Post: About Your "Guaranteed" Santa Claus Rally....

Tyler Durden's picture





 

Submitted by Charles Hugh Smith from Of Two Minds

About Your "Guaranteed" Santa Claus Rally....

Will Santa Claus arrive in time to deliver his usual year end rally, or has he decided to trim his largesse to Wall Street this year and instead deliver lumps of coal to Bernanke, Geithner & Co.?

A lot of punters are awfully confident that Santa Claus will deliver his usual year end rally this year. A glance at a few charts calls that confidence into question. Let's take a look at a daily chart of the S&P 500. (Those of you who loathe charts, please scroll down and enjoy the pithy conclusion.)

While charts are as much a reflection of the reader as the market, several things pop out of this chart to me. One is the bullish flag in September. The On Balance Volume (OBV) was rising while price declined, a classic example of bullish divergence. Given this and some other clues (sentiment hit an extreme of bearishness, VIX spiked,etc.), then the rally in October was not exactly "out of the blue."

But when we turn to recent action, the indicators are bearish. OBV climbed to a new high, but price did not even make it up to the previous high--a bearish divergence. Now OBV has plummeted while price has skyrocketed higher, an extremely ugly divergence.

 

 

Meanwhile, stochastics are already overbought and VIX (not shown) punctured the lower Bollinger Band, and sentiment by some measures is either neutral or moderately bullish, all of which suggests complacency is once again the dominant emotion.

All these bearish signs have appeared just as price ran into the buzzsaw of strong overhead resistance: the 200-day moving average and the top line of a gigantic wedge formation, which typically breaks big up or down.

Given the lower highs--a classic sign of a weakening market--and the indicators suggesting this last manic rally has run out of steam, then we might reasonably conclude that the big break out of this wedge will be down--and perhaps in a major way.

Consider this chart of the 2007-2011 period from my Chartist Friend from Pittsburgh (who has shared both bullish and bearish charts with me). Notice the remarkable similarity of the pattern that preceded the 2008 waterfall crash and the current price action. Coincidence? Perhaps.
 


Perhaps the general blithe confidence in Santa's delivery of a rally is misplaced; perhaps he's decided to trim his largesse to Wall Street this year and instead deliver lumps of coal to Bernanke, Geithner & Co. It's something to consider.

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 12/06/2011 - 11:02 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Range trading, with a consistently downward and narrowing range?  Ah if only technicals mattered anymore.

Tue, 12/06/2011 - 11:05 | Link to Comment InternetInfidel
InternetInfidel's picture

Yeah in the days of HFT and centrally planned intervention after intervention it doesn't really matter what the technicals say, Equities will do what they are told to do.

Tue, 12/06/2011 - 11:21 | Link to Comment Hard1
Hard1's picture

You better watch out

you better not cry

you better not pout ZH is telling you why

Tue, 12/06/2011 - 11:36 | Link to Comment HD
HD's picture

Bernanke Claws is coming to town

He's zirp'n the rates, cutin' them twice

Gonna find out if QE is naughty or nice

Bernanke Claws is coming, the clown!

 

Tue, 12/06/2011 - 12:21 | Link to Comment Pythaes
Pythaes's picture

though sometimes the intervention comes at significantly important technical levels....

Tue, 12/06/2011 - 11:23 | Link to Comment CPL
CPL's picture

I was about to say.  There is nothing left in the market, HFT's rule it now.  The article is correct, technically, but long term now is three hours.  Attempting to plot macro move of TPTB is pointless, if GS or JPM or whatever squid member say there is going to be a rally, it's because they are moving the market where they need it.

 

Basically the Squid is running out of options as retail traders, hedge fund and now (I've heard) pensions are taking astep back from the conventional norm of equities.  Everyone knows the fix is in, so there really is no point in playing when the game is rigged by CPU cycles and bandwidth versus the original reason for a marketplace, value.

 

I would suggest if anyone wishes to have a good Xmas, sell if in a positive position and do NOTHING.  To a further extreme, close your trade accounts with the trade houses and stay out of it for a while.  Once this all burns down, we will have the opportunity to rebuild it with certain counter measures in place to nuke auto trading bots remotely.

 

Actully here is a question.

 

What would we as traders and citizens need to make sure trades are all trades are completely transpearent?

 

For the bot traders, it would be easy enough to fix, captcha trade requirement with a certificate that checks the balance of the bidder to block all margin trades except for shorts where it is required.

Tue, 12/06/2011 - 22:07 | Link to Comment StychoKiller
StychoKiller's picture

Make the cost of doing wrong/illegal things, such as quote-stuffing, more expensive than doing things the fair/legal way -- end of story.

Tue, 12/06/2011 - 11:25 | Link to Comment Ruffcut
Ruffcut's picture

It is a "normal" rally. The new meaning has been established for that with as bad as the banks are insolvent, holding up this bitch of worthlessness, is considered success.

Just like "normal" background radiation, created by 2000 nuclear detonations over the past 60 years.

Tue, 12/06/2011 - 11:02 | Link to Comment RobotTrader
RobotTrader's picture

McClellan Oscillator is charging higher.

Financials are leading the tape.

NYSE Summation Index turned back up last night, confirming the bullish trend.

http://stockcharts.com/freecharts/McSumNYSE.html

Tue, 12/06/2011 - 11:05 | Link to Comment The Axe
The Axe's picture

The same bulls said that Thanksgiving is always a rally week....Good luck Chuck with that idea.

Tue, 12/06/2011 - 11:08 | Link to Comment clones2
clones2's picture

Oh exactly - thats why the market is UP this morning and financials are DOWN...

Tue, 12/06/2011 - 11:18 | Link to Comment SheepDog-One
SheepDog-One's picture

'Financials leading the tape' oh so thats why financials are down, indexes up?

Tue, 12/06/2011 - 11:51 | Link to Comment Stax Edwards
Stax Edwards's picture

Only momo chasing fucknuts are buying fins IMO.  Russian roulette.

Tue, 12/06/2011 - 11:02 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Meh.

Tue, 12/06/2011 - 11:04 | Link to Comment RobotTrader
RobotTrader's picture

Basic materials strong today, Vulcan Materials leading the SPY, up 4%

Tue, 12/06/2011 - 11:23 | Link to Comment SheepDog-One
SheepDog-One's picture

Robo going all-out cheerleading for a rally...he needs it desperately as his last firm trade call was 'Im all in long here at DOW 12,700 watch this market rocket higher all you silly bears on this debt ceiling resolution passage'....oops.

Tue, 12/06/2011 - 11:04 | Link to Comment TradingJoe
TradingJoe's picture

BAZINGA!!

Tue, 12/06/2011 - 11:06 | Link to Comment RobotTrader
RobotTrader's picture

INTC, HD, WMT at 3-yr. highs

Where's the recession?

Tue, 12/06/2011 - 11:11 | Link to Comment Momauguin Joe
Momauguin Joe's picture

Visit your local food bank.

Tue, 12/06/2011 - 11:34 | Link to Comment whatsinaname
whatsinaname's picture

Robo check out how many school kids get to eat lunch on the weekends !!

Tue, 12/06/2011 - 11:23 | Link to Comment The Deleuzian
The Deleuzian's picture

Looks like an easy short Robo!!!

Tue, 12/06/2011 - 12:33 | Link to Comment Milton William ...
Milton William Cooper's picture

Recessions happen in the economy....the stock market is not the economy

 

....but I'm sure you already knew that. That's what I love about you, you're attention to detail

Tue, 12/06/2011 - 11:06 | Link to Comment Undecided
Tue, 12/06/2011 - 11:14 | Link to Comment InternetInfidel
InternetInfidel's picture

Rumors of rich mineral deposits in Afghanistan have been popping up since the talk of a US withdrawal from the country began.  Given that Pakistan just shut down Nato access (http://www.zerohedge.com/news/guest-post-furious-latest-us-attack-pakistan-shuts-down-resupply-routes-afghanistan-permanently) do you really think we'll be looking to leave and let China take over there.  Watch for more rumors of mineral deposits, gold, uranium, oil, etc.  Also watch for Uzbekistan to play an interesting role as it is the US's last supply route into Afganistan.  Meanwhile China gains a new foothold in Pakistan...

Tue, 12/06/2011 - 11:07 | Link to Comment wrs
wrs's picture

true, you never know what the next miracle announcement followed by massive market infusions might be.   However, at some point, the rest of the market players or at least a decent number have to jump in the pool or the numbers don't keep going up.  That is where we are now, not enough players are convinced that 1300 is attainable and hence are sitting on the sidelines waiting for confirmation.  It looks to me like the Fed is needed here but so far, no dice.

Tue, 12/06/2011 - 11:13 | Link to Comment RobotTrader
RobotTrader's picture

Gold getting crushed.

Interest rates still at record lows

Gasoline prices plunging

No wonder chip stocks like NVLS are up big this month

Everybody wants new gadgets for Xmas.

Tue, 12/06/2011 - 11:21 | Link to Comment SheepDog-One
SheepDog-One's picture

Robo still waits for 'the big rally'...he desperately needs to see DOW 12,700 again, recall where he went all-in long for the 'huge debt ceiling resolution rally' which resulted in a plunge to under 11,000...

Sucks being Robo.

Tue, 12/06/2011 - 12:03 | Link to Comment Boston
Boston's picture

Gold getting crushed.

Thanks.

Just bought a bunch of Maples.


Tue, 12/06/2011 - 16:12 | Link to Comment Lord Koos
Lord Koos's picture

Gold holding at over $1700 is "getting crushed", when it was $1400 at this time last year? 

Tue, 12/06/2011 - 11:18 | Link to Comment RobotTrader
RobotTrader's picture

Latest from King World News:

"With gold and gold shares getting chain-sold after S&P put 15 European nations on negative credit watch, today King World News interviewed one of the most street smart pros in the resource sector, Rick Rule, Founder of Global Resource Investments.  When asked about the latest move by S&P putting many European nations on negative credit watch, including France and Germany, Rule replied, “It’s astonishing.  Obviously the rating agency’s perceptions have changed fairly drastically in the last couple of years.  I think what probably precipitated this, Eric, had to do with the failed bond auction in Germany.  The market may have been telling the rating agency something that the rating agencies didn’t already understand.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/12/6_Ri...


Tue, 12/06/2011 - 12:50 | Link to Comment Milton William ...
Milton William Cooper's picture

anyone remember what Robo was saying in, oh, late 06 early 07?

Tue, 12/06/2011 - 13:05 | Link to Comment SwingForce
Tue, 12/06/2011 - 11:20 | Link to Comment CvlDobd
CvlDobd's picture

Darden down 9.5% today.

Vulcan only needs another 20+% to get back to even on the year. Woot!

What recovery?

Tue, 12/06/2011 - 12:03 | Link to Comment Stax Edwards
Stax Edwards's picture

Thanks for the heads up on DRI, I had not seen that

Tue, 12/06/2011 - 11:23 | Link to Comment Village Smithy
Village Smithy's picture

You use "punter" like its a bad thing. What's wrong with remaining agile in this ridiculous market. You are begging for pain if you commit to any position.

Tue, 12/06/2011 - 11:24 | Link to Comment digitlman
digitlman's picture

....aaaand somehow we just got a big lift.....over 40pts....love this rigged market.

 

More EUR rumors, no doubt.

Tue, 12/06/2011 - 11:28 | Link to Comment SheepDog-One
SheepDog-One's picture

40 points....sure falls far short of the much anticipated 'Santa Claus Rally'

Tue, 12/06/2011 - 11:58 | Link to Comment scatterbrains
scatterbrains's picture

Since we know these leaders are corrupt and assuming that it is already known what the final outcome will be and thus whispers are flowing through the cia/fed/senate etc  should we fade what ever the trend is going into Friday? If it's a done deal/good news I would expect nutsach at nyfed to take the market down with bearish news out of the msm so that they can load up for the launch higher. On the other hand if they know they are all fucked do they leak positive spin out of msm while hft'ing the market higher as they cover and get short ? Or are they stalling as long as possible so that the bearish news comes in thin holiday markets and thus nutsach wont have to do too much heavy lifting of spoo? Maybe everything is being time so that the Euro collapses, and in the spirit of never letting a crisis goes to waste, nato invades Syria and Iran at the same time before bank holidays commence ? Or should I just keep drinking my cough syrup ?

 

Tue, 12/06/2011 - 11:35 | Link to Comment junkyardjack
Tue, 12/06/2011 - 11:35 | Link to Comment Silverhog
Silverhog's picture

Chart show the classic shopping cart pattern. But looks like the wheels fell off. I think it's going to get hit by a truck shortly.

Tue, 12/06/2011 - 11:39 | Link to Comment beaker
beaker's picture

Since the beginning of time, all China has cared about was securing its borders.  They have never been colonialists of any consequence.  So let the Afganistan people have that barren fucking hell hole.

Tue, 12/06/2011 - 11:40 | Link to Comment ShankyS
ShankyS's picture

Well done Charles. Just a waiting game from here. Must always remember the difference between markets now than anytime in the past is that tehy are purely manipulated at this point. Just have to wait for the system to overwhelm their capabilities and then it all turn to dust. 

Tue, 12/06/2011 - 11:42 | Link to Comment SheepDog-One
SheepDog-One's picture

It will be a straw, that breaks the camels back.

Tue, 12/06/2011 - 11:56 | Link to Comment Bob the Horse
Bob the Horse's picture

The financial markets have never been more complex.  Yet, armed only with a ruler and coloured pens, this man has solved the mystery.  Well done sir!

Tue, 12/06/2011 - 12:11 | Link to Comment FranSix
FranSix's picture

One scenario might be that a concomittant decline in both stocks and bonds might occur.  

We haven't had any reporting on the recent 30-year treasury bond auction and at the same time, S&P resorts to placing even solvent countries on credit watch in Europe without the slightest hint of domestic foibles.

Tue, 12/06/2011 - 12:13 | Link to Comment RoadKill
RoadKill's picture

Let me simplify it for you.

When everyone on CNBC is talking about a rally and even the perma-bears seem resigned to loose $, markets will fall. Everyone talks their books, and it means they are already in. If you are long and giddy you are wrong, if you are short and scared shitless, you are probably right.

When everyone on CNBC is saying game-over and the perma-bulls are shitting themselves, the market will rally. If you are long and depressed, market will rally. If you are short and are giddy thinking about the "next leg down" you are screwed.

I've never made as much $ as when I have trouble sleeping because I'm all-in and everyone on CNBC tells me Im about to be killed. When I have to go to the bathroom and vomit before I comitt that last dollar of capital, that's the best trade I make.

It's a tough life being an anti-beta chaser. You don't sleep, everyone is always telling you that your wrong, and you are convinced they are probably right and tomorrow you'll be living I'n a van down by the river.

The second your Huberis makes you feel invincible and the sickness and shakes go away - get out of the business. I'm looking at you Paulson.

Tue, 12/06/2011 - 12:18 | Link to Comment RoadKill
RoadKill's picture

Btw my above post works both ways. The 2009 bottom happened within days of my PM telling us he feared the next great depression. I was pitching DOW that day.

The 2008/2011 top was evident (In hindsight) because we were doing every financing that some supposed genius came up with. Sand Ridge, Glencore, and Rothchild's Indonesian coal deal.

Tue, 12/06/2011 - 12:25 | Link to Comment jomama
jomama's picture

i still don't get the parity between Au fiat price and stocks.  gotta be the paper market.

Tue, 12/06/2011 - 18:39 | Link to Comment tooktheredpill
tooktheredpill's picture

well i guess charts matter since everyone loves them. But then there almost looks like a similar pattern in 2010 and then it went up? Or am I just looking at it from the wrong angle?

Who knows, but maybe someone needing to place more pressure on some weaker members is more important. The timing of this new treaty will be pretty important I think.

Do NOT follow this link or you will be banned from the site!