Santa Claus Rally 2007 vs 2008

Comment

Comment by Unersaettlich on December 21, 2008 at 6:56pm

Here's another view, also bearish (on balance):
http://tinyurl.com/Dec22Newsletter

This video posted by Richard has another bearish view of S&P (and DJIA): an inverted cup&handle on the 15-min chart, not apparent on the above charts, so watch the beginning of the video. He does not promise that S&P and Dow will tank, but discusses both bullish and bearish possibilities.

Comment by Unersaettlich on December 21, 2008 at 5:03pm

Schweizer -- when I tabulated the 59 years of all S&P data, I found that the average year was similar to 2007, with the Santa rally starting right at Xmas and lasting into the first week of Jan, while the two weeks starting about Dec 9 or 10 were pretty bad on the average. I made a chart of the average performance with Excel:

Dec 14,15, 20, and 23 all averaged being down days while the other pre-Xmas days were average up days. The big winner was Dec 26, with no average losers until a few days into January.

Comment by Unersaettlich on December 21, 2008 at 4:11pm

Brian -- your links to stockcharts.com will generate only the default generic chart of the Dow. You need to click "Linkable Version" under the chart to get a link that will generate your chart. You also need to take care not to post such links if they require a subscription, because lots of the people here use TOS (Think-or-Swim) for their TA. Right-click on the chart, save it as a BMP file (use some generic name such as scratch.bmp because bmp's are huge), then open it in Windows Paint, and save it as a 256-color .GIF file, which will be much smaller. This only for charts, not photos; use .jpg for them. I use Photoshop Elements Version 6 (it's cheaper than ver. 7 and reportedly less buggy, and will do more than all you wish of a digital image editor, in addition to being a killer app for the money if you have a digicam).

Then click on the green button in the comment or post window; its tooltip is "Add an image." I posted how to best do this under

http://social.stocktock.com/profiles/blogs/how-to-post-a-chart-so-that-it

I try increasingly to keep charts to a max of 660x660 and check "Create thumbnail?" and change the size from 300 pixels to 700, so the chart is directly readable at max sharpness rather than requiring a click or two on the thumbnail.

To post hot links like the above, highlight the URL, click the link button in the comment or post window, tell your popup blocker, if any, that you wish to temporarily allow shenanigans, then highlight the URL and click the link button again. This brings up a mesage box where you paste the link and then click OK.

I will also post this on the blog and in comments to your comment, so others can see these techniques.

Comment by Tuke on December 21, 2008 at 12:10pm

Hey Schweizer! I like the work that you've been doing but I thought I should point out one quick thing. The indicators in your 2007 chart are not diverging.....actually they're confirming. The indicators are all making lower highs and so is the price in the chart. You would need the second 'hump' in the price to have topped out at or above 1523.57 to put the indicators in a diverging stance. Just want to be sure you have that for future charting.

Your signs for bearish-ness on the 2007 chart should have been the trendline break (connect the bottom of the Nov 26th candle to the bottom of the Dec 18th candle) AND the price breaking down through all 3 MA's with the 20 below the 50 below the 200 (very bearish sign).

What we have right now is ascending triangle in the 2008 chart which is bullish. We all know the news is terrible and things should be tanking but you have to take what the charts are showing you and not what your mind wants to believe will happen. I'm short the market so I hope it tanks hard but until the ascending triangle is broken my first bias has to be bullish especially coming into what is sure to be a low volume x-mas week.

Soooo.......not trying to step on your toes and I hope you take all that as constructive criticism but I just wanted to add my .02 on the MACD divergence thing to hopefully help you in your charting down the road.

Comment by Brian on December 21, 2008 at 11:58am

Nice charts. Is the triangle drawn on the 2008 chart an ascending triangle rather than a descending triangle? Daneric has his drawn a little differently, but the thought is the same, the ascending triangle will continue the rally off the Nov. short term bottom. I guess the TA depends on the time frame. the 10m, 60m daily and weekly charts reveal their own pictures. On November 20th, another blogger posted a monthly chart, with his expectation for a once in a lifetime bear market rally up to the 16 month ma:

http://social.stocktock.com/profiles/blogs/where-were-you

That analysis still seems valid to me. The weekly charts remain bullish: http://stockcharts.com/h-sc/ui

Upturn on the MACD, positive upward trendlines on the RSI, STO and the MACD is about to record a bullish crossover. 2 weekly doji candles indicate the short term indecision and may just be the market gathering energy before a push higher.

Weekly chart of the VIX reveals the same traits, but in a bearish fashion:http://stockcharts.com/h-sc/ui

Clear downtrends on the STO, RSI, and a bearish crossover on the MACD. 50 week ma is 32.

Do I have a clue where the market will be Mon, Tues or Wed of next week? Not a clue. Nor next month, quarter or year. But the big picture being painted by the monthly and weekly charts indicate that some type of weekly or monthly rally should be in the cards, and that meshes with my fundamental analysis. There is a great article from Dec. 17th that makes some bearish comparisons between us and the Japanese market:

http://www.financialsense.com/Market/cpuplava/2008/1217.html

Some very good charts and analysis in there on demographics, bank credit and consumption. The charts that caught my attention was the 200dma and how markets don't deviate from that important trendline. Check out the charts and what happened during the Great Depression. Horrific declines, but some of the biggest meanest rallies of 50% or more came from that era. We are as far removed on the SP500 from our 200dma as we were in 1929. Look what happened then in chart 12. We went above the 200dma by 50%. Of course the market later turned down in the 30's and undercut the '29 lows.

Bear markets are supposed to be difficult for all participants, long and short. It has been too easy to simply short the market over the past few months. Intra day volatility has been incredible. Perhaps it is time for a slow grind higher, without volatility. Bears waiting for the "crash" will be disappointed. Lack of volatility will bring more money managers into the market. Maybe a few panic upside days will bring in money that doesn't want to be left out. When the policy actions don't take hold, when earnings and other numbers disappoint, when there is a currency crisis or geopolitical crisis, or crash in the T market, then perhaps we get the impetus for the cascade lower, and the energy to undercut the 2002 lows. I don't see the energy for that in the near term. Bringing in new bulls for the first few weeks/months of 2009 will give the market that energy for a push lower.

Of course the market doesn't care about what I think or how I interpret the charts or the fundamental news. So I will continue to watch the market, watch the price action and I will continue to look at market groups for clues as to where the market may be going:

http://stockcharts.com/scripts/php/candleglance.php?XLF,XLK,XLI,XLB,XLE,XLP,XLV,XLU,XLY

In the end, regardless of what conclusion I reach about short, intermediate or long term direction of the market, I will do the opposite of what our investment banks have done, and I will manage risk: Position sizing, stops, cutting losses, not averaging down, etc. The market extracts a tuition from us traders for the lessons we learn each day, but sometimes we are responsible for the amount of that tuition.