Wednesday, December 1, 2010

Ho Ho Ho!

Wow - what a way to kick off December! I called my post yesterday, "Looking for higher", and we sure found higher today, up a whopping 250 points for a 2.27% gain to 11,256, the Dow's best gain since September 1st (you remember September 1st - that was the day that kicked off the big fall rally).

Of course, the question everyone is asking now, being December, is: what's the story with the Santa Claus rally, and which Santa is going to show up? Will it be jolly old St. Nick with a sack full of toys for all good little traders, or will it be Futurama's evil Robot Santa, bellowing "Your mistletoe is no match for my TOW missile!"

Let's try to sort it all out. First of all, historically, December is a great month for the markets in general, with the S&P averaging a 1.6% gain and the Dow a cheery 1.7% gain. Now of course, December wasn't so hot last year, coming as it did after a monster rally that lasted most of 2009. And naturally all of 2008 was just a complete nightmare. I just went over the monthly Dow chart going back 20 years and it seems that the Dow does better in years where it has some positive momentum pushing on it going in but isn't yet overextended, as we had in 2003 and much as we have now. By contrast, in years where the overall performance was lackluster, like 2002, the Dow was down in December.

But what we really want to know is what about this December. Well let's look at the monthly Dow chart:The chart looks a little busy because I've left all the recent RTC channels up and because I wanted to get the entire swing from the 2007 highs to the 2009 lows in there, but bear with me. On a monthly basis we see that we're pretty much in an upward trend going back to September.

Today's action completely canceled out last month's negativity. And just as important, today we finally closed outside the channel that's been going on forever it seems, breaking convincingly above the 11,200 level. And why was that number such resistance anyway? On the monthly chart, you can follow the lines back and see they point tot he "summer shelf" of 2008 just before the big meltdown.

I mentioned recently that I think a lot of people who rode the market all the way to the March 2009 bottom are now so thankful to have finally made back their losses that they've been unloading their stocks right here. It looks like this process may finally be coming to an end, thus freeing the market for another leg higher. Having cleared the 11,200 barrier, the next resistance point is 11,705, which is the upper Bollinger band. Then we have the psychological 12,000 level, and finally 12,600, the high of June 2008.

Note also that the monthly indicators have not yet reached overbought levels and even the weekly indicators are now actually less oversold than they've been since the end of September. In fact the weekly stochastic is now getting ready to make a bullish crossover. Now I freely admit that I am by nature biased to the long side (though I try to stay neutral when doing analysis), but it's looking to me like this December it's going to be a merry Christmas. Assuming we can keep the Koreas from blowing each other up and the rioters off the streets of Europe for a while.

In any case, I now have my long hat on again, though I'm leaving the channeling icon up one more day until I see an actual daily upward trend forming, something that I can draw an RTC channel across. After such a big run-up today, I'm not expecting a whole lot more out of tomorrow, but I also don't think we'll give up all of today's gains either. I'd vote for a narrow range day tomorrow, and slightly negative before resuming higher. We'll see.


Today I entered a small long position in GMR, General Maritime Corp., another shipping outfit, at 3.86. It's been beaten down pretty badly for a long time but is now looking oversold on a daily basis, and still reasonable on the weekly chart.

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