Weekly Review

I know that most everyone has already declared victory and gone home for the year by now, but here's my take on the next few days anyway.

Take a look at the weekly chart of the Dow. After four consecutive weekly green candles, you'd think the indicators (being, from top to bottom a long stochastic, RSI, momentum, money flow, and short stochastic) would all be pretty overbought. But they're not. In fact, if you use a bit of imagination looking at the candles, the last three weeks look like a "three white soldiers" pattern and that is quite bullish. Also, our weekly close at 11,573 still leaves us a few hundred points shy of the upper Bollinger band at 11,818, implying at least a bit more room to run. Note also that the last week of December (modulo the very last day) is historically good for the markets.

The VIX

In a piece in marketwatch.com today, someone from a place called Warren Financial says:

“The Vix is the lowest we’ve seen since before the financial crisis,” said Warren of the CBOE Volatility Index /quotes/comstock/20m!i:vix (VIX 16.47, +1.02, +6.60%) , which on Wednesday fell 6.3% to 15.45, its lowest close since July 2007."

OK, well let's look at the VIX. Here's a chart of the VIX, in monthly candles (since Mr. Warren is taking the long view) going all the way back to 2006, before the housing bubble really took off. In the 2005-2006 area, the VIX was averaging below 12, and actually hit a low of 9.39 in December of 2006. Compare that to today's 16 and a half and I'd say that the alarm bells are a bit premature (as they generally are). Remember back in those days when people were saying the VIX was "broken", that it no longer worked and that some new indicator was needed? I'll believe a market correction is imminent when I start hearing that sort of talk again. Until then, I think the VIX still has room to fall further and stocks have room to run higher. Today, the VIX is only low if you compare it to the crazy levels it reached back in 2008. The VIX at 90??? Now that was the buy signal of all time.

Conclusion

It's hard to draw any significant conclusions in a market where the major players are absent, but I think the last week of the year will be pretty much a re-run of last week. We may see some tax loss selling on Thursday, but I think that effect will be muted this year, since the market as a whole has done well this year and therefore people will have fewer losers they feel a need to jettison for tax purposes. I'm not expecting any major disasters out of Europe this week mostly on psychological grounds. The weather there is too dreadful right now for rioting in the streets and I think most people would rather stay home and digest their Christmas goose or turkey or whatever. So I'm going to keep the green trend arrow up and keep my long hat on for the next few days.
That said, the ES right now ( 9 PM EST) is down nearly half a percent, so tomorrow might not be so hot, but I'd still expect the year to end no lower than we are right now.

Performance

Last week I was up a gratifying 1.12%, bringing my YTD total to a nice 30.80%, compared to the Dow's 10.98%. My win/lose ratio by day (number of days I made money over number of losing days) now stands at 1.62, or just under a 5 to 3 ratio. I'll do an annual performance review next weekend.