In my report to clients on Tuesday night many stocks seemed to have turned the corner from the recent sandwich pullback and I said it could be the start of the Santa rally. I’m not a rocket scientist. I merely asked myself a simple question. If not now, then when?
Let's be clear, the bears didn’t really huff, puff and blow the house down. Then on Wednesday morning, the Dow was hovering at its new, old high set just two days earlier. The one-minute YM was wrestling with resistance, going sideways and reality hit that every new point above 19274 was going to be a new all-time high.
Usually what happens is a market that sets a new all-time high will go marginally higher and maybe a little higer still. Perhaps we already went through something like that with the Dow as it hit the milk and cookies level on Nov. 25 and it marginally pulled back. For those of you who don’t know, my old friend on Financial News radio Sinclair Noe used to call for milk and cookies every time the Dow hit a new high. That was 1999. Sinclair must be having a lot of milk and cookies these days.
It happened again on Nov. 30 and finally last Monday. This time it exploded hundreds of points higher, with every point setting a new all-time high by itself.
Santa came right on schedule and we could be in a sequence where they’ve bought the rumor and will sell the news when Fed Chair Janet Yellen gives us our token interest rate hike for the year on Wednesday. It’s like Brexit insofar traders were buying the news of Brexit losing and they were going to sell the election. But Brexit won so there was a lot more than profit taking. All I’m going to say is if Yellen and company chickens out this time, I don’t think the market is going to like it very much. Instead of taking profits on the news, they’ll crush it. But I’ve heard there is either a 94% or 100% chance they will raise rates.
This market has become so powerful that we had several smaller degree calculations for a breather on Friday and it only partially materialized. One of the few areas that did respond was the SOX which put in a bear belt on Friday based on a 61 hour high to high sequence. Another was the Transports backed and filled on Friday. Biotech has been weak but oil remains strong, housing looks okay and banking is hanging on as it tried to drop but recovered into the close.
One of the areas that remains a struggle is precious metals which is wrestling with a 261-day low last week and marginally violated it on Friday. By Monday morning the precious metals were lower so last week’s 261 window has been violated which is not a good sign if you are a gold bug.
There really isn’t much to complain about here because we have a market taking near maximum advantage of a seasonal factor to not only to do well but is doing probably as well as it can. Here’s a theory I’ll throw out, I heard an analyst talking about it on television and it was very interesting. I didn’t catch his name but he made mention to the fact traders have bought the election but they likely will sell the inauguration. I get very nervous when people look 6 weeks out as it reminds of the famous Bob Pisani see-over trade from 2011.
For those of you who don’t remember, back in May 2011 Pisani attended a charity event and was told by a number of hedge fund honchos they were looking beyond the summer which they felt would be flat because they expected a really good 4th quarter. You remember what happened in 2011. There was a European crisis, markets went into a tailspin and there was also fear the politicians would default on the debt. It didn’t help with Corzine from MF Global pulling his stunt, sorry to remind you. But the point is you can never be complacent to look 6 weeks ahead. Yeah, they may very well sell the inauguration. A new Trump administration will have to push its tax cut and job growth agenda through Congress and it takes time.