You can't have it both ways

December 21, 2015 09:55 AM

Where is Santa? Is he missing in action?

The last time I checked, Santa always shows up in December. For the stock market he comes early and late. Traditionally, holiday euphoria hits the early part of the month and then again within a week of Christmas. If you look closely, much of the time in recent years you’ll find that sandwich period where the market does get hit.

This time we didn’t have a traditional buy the rumor, sell the news or sell rumor and buy the news sequence when it came to the Federal Reserve. Janet Yellen and company raised rates a quarter point much like they told us they would. You’ll recall the market was declining into last week. No worries as they rallied on Monday. So that meant buy the rumor and sell the news, right?

Not exactly. On Wednesday after the announcement there was a false break to the downside and the market went even higher. But on Thursday the market got crushed. Was it buy the rumor and sell the news? Well, not exactly. Something else appeared to be going on.

Traders fixated on a different problem. It was all about the oil. Suddenly the trading community found something more important than the Fed. There’s good and bad news in that. The good news is people are starting to wake up. That is a mighty good thing. With the headlines mostly bad these days, it’s vitally important the West stop behaving like a society that refuses to deal in reality.

On the other hand, that means they realize oil has been a good economic indicator in the 21st century with both the equity and energy complex ending up lower. Let’s not forget we just had an ISM report at 48.6 which officially announced my nightmare scenario of a rate hike when economic conditions don’t call for it. Don’t believe me? None other than Marc Faber said more or less the same thing last week.

I’m sure I wasn’t dreaming when I heard Janet Yellen say she was concerned about the economy overheating. She did say that during the press conference, didn’t she? Here’s my bottom line for the Fed: I think they were going to raise rates no matter what the numbers said. The economy is certainly not even close to overheating and they wanted to say they raised in 2015 even if it took to the very last meeting of the year to get it done. I tend to think they’ll be lowering rates again within a year and she’s trying to put some powder back in the gun.

So let’s get back to Santa. The only times we really haven’t seen much of Santa is during a serious bear market. On Thursday, the charts looked horrendous. I see them, nevertheless I told clients to look out for a rally even as it can turn out to be an unusually weak one this year. Friday markets continued lower. So we now have only four days to go as we hit the light volume holiday trading portion of December.

Traditionally, markets will do better in the days leading up to Christmas as opposed to New Year’s Day with the entire period showing seasonally bullish as opposed to not. We have an incredibly bad start this time around. From here, extrapolating with the information we have right now on Sunday night (as I’m writing this) it appears the best we may end up with is a dead Santa bounce this week.

Let’s go over some of this action. Last week I told you to carefully watch the top of the A or first leg up in the SPX. We talked about Elliott and the 4th wave overlap rule. We talked about that upper tail and how I don’t keep the strict interpretation and you should watch to see if the action held the real candle body from Sept. 17. They did and they turned it up.

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About the Author

Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.