Is a Santa Claus Rally in Store?
Holy volatility Batman! The DJIA was down 500 points Monday, dipped and recovered in a 200 point range Tuesday, exploded 700 points to the upside Wednesday, and pulled back 200 or so in a 400 point range Thursday. All told Friday begins about where last Friday eft off.
After trading billions of shares this week, investors apparently decided the market was fairly valued a week ago. Some markets are now up 20% from the summer lows. This compelled the Wall Street Journal to announce that stocks had re-entered bull market territory. I don’t think it is quite that simple, let’s examine some indicators.
The Dow Industrials made a new high above its summer peaks. The Transports have not to this point in time. Transports are trading below the last two highs this year. I do not think we have an official Dow Theory buy signal quite yet.
The most reliable indicator remains the NYSE Advance Decline Line. It bottomed September 17. It has now risen since but is considerably below its August high. Sixty-five percent of the S & P stocks are now over their 200 day moving averages. The indicator looks very toppy. But this could support stocks further this month. ‘
The weakest index this year is the NASD. It fell some 30% from its November-January high. It has bounced 12% from its October low. Were Charles Dow creating his Theory today I suspect he would want the NASD to confirm the Industrials. Technology stocks are that important.
Often the first three days set a tone for the month. A positive close today Friday would indicate enough strength to support the Santa Claus Rally idea.
The media, as always, attempted to link a news event to the rally. Their conclusion was that Inflation was cooling and FED Chair Powell was moderating his stance on raising interest rates. But a reality check reveals a $55.30 rally in gold and a $1.06 up move in silver. West Texas Intermediate closed back above $80 after touching $74 on Monday. As in the stock market, no lack of volatility here. The better idea is that inflation has stabilized at this level for the time being. Mortgage rates pulled back under 6%. Our idea of buying municipal bond funds was successful with many advancing 10$ in the last month.
Exxon Mobil rose from $65 to $110.80 and looks pretty stable at this level. Apache has risen all the way back to $47.
Here is our bottom line. Expect stocks to hold onto their gains during December. A resumption of the downtrend is likely in the New Year. Crude oil should hold its gains with a high this month and in mid 2023. Expect a correction there before the new high next year.
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