On the 60min chart that I put up on Friday, I noted that the RSI on the chart was above 70 and that one can usually expect some kind of consolidation period or pull back when the RSI rises above 70. The RSI on the 60min charts of XLF and DIA also rose above 70 so these, too, are showing overboughtness and may need a little time to cool off and digest recent gains. Other than mutual fund managers and market makers working the market higher on Friday, I really have no idea why the Dow would have added 124pts and better than 1%. Even so, I have to expect some kind of Santa Claus rally/short squeeze next week. Next week should see light volume and one way to pull in more volume is to engineer a short squeeze, because it is all about turnover.
Market markers, brokerage firms, clearing houses, etc cannot stand the buy-n-hold crowd because they don’t make any money on transaction fees if people buy a little here and there but don’t intend to sell. So this group can steer the market where they think they can generate some turnover and transaction fees, and that would be higher for now.
Shorts probably have their stops set just above 1267, 1277, and 1292. If the mad men at the helm can push $SPX into these levels, then shorts will scramble to cover. And with the $SPX now up a whopping 0.6% on the year, a nicely engineered rally into the 1290’s would mean a yearly gain of around 3% and that might be enough to stem the tide of outflows from mutual funds that are draining equity based mutual funds.
I would love to see a nice Santa Claus rally next week and would love to see $SPX rise up close to or above 1300. It’s only 35pts so why not? The rally might even last a little bit longer into the first week of January.
Generally speaking, the best time to be in the market is from October through the March/April period as we all know that the Big Boyz sell in May and go away, or so the saying goes. This year could be different due to earnings that by some accounts are expected to be less than stellar. AA reports in the second week of January and if the chart of AA is any indication then it doesn’t look too good for them and if AA does in fact disappoint, then that could set the tone for the remainder of earning’s season.
In the meantime, we have two key sectors that are underperforming the major indexes, and one key sector that has been underperforming of late: $RUT, $SOX, & $NDX.
The $RUT is down about 4% on the year, the $SOX is down about 10% on the year, and while the $NDX is up around 3% on the year, chart wise it is in trouble, with the 9EMA still below the 20MA and with $NDX still below the 50 & 200MA’s. So watch these in the week ahead because any rally will need to include all of these and $RUT/IWM really does need to lead.
Last week’s $SPX weekly chart:
This week’s chart shows $SPX pushing through and closing above the symmetrical triangle pattern. Except for Wilder’s ADX, everything else is moving upward. I don’t know if the 13MA can cross up through the 26MA this week since it’s only going to be four sessions, but if it should then that would have to be seen as a positive for $SPX going forward.
To me, the chart looks neither bullish nor bearish because it’s so difficult to tell whether $SPX is moving up, down, or just sideways. I think we will have a clearer picture by this coming Friday.
I’m going to be following this daily chart next week and will be watching the 200MA for a northerly turn and for previous swing points to fall by the way. If the market should pull back instead of moving higher, then, if the market is truly headed higher over the next couple months, the rising trend line should halt any such pull back, or famous last words.
GL in the week ahead.