Sometimes a little Christmas magic is all you need…
For the past 6 weeks, the S&P has been stuck in a sideways trading range. While there have been plenty of hot sectors to trade, the broader markets just haven’t had the oomph to get past the critical 50% fibonacci retracement level. The clear line in the sand has been drawn at 1120 on the S&P.
This trading range is coiling up in as tight a range as you’ll see on any index. Typically breakouts from this kind of “spring” are fast and furious, and to this point, things were looking to go bearish on the S&P 500′s chart. However, now there is some encouraging news.
Before I get to the chart, let’s discuss the Santa Claus rally. The Associated Press released and excellent article yesterday discussing the phenomenon:
_ November through January tends to be the best three-month span for stocks. Over the past four decades the average gain from Nov. 20 through the end of January has been 4.2 percent, or an annualized rate of 23 percent, according to James Stack, president of InvesTech Research in Whitefish, Mont.
_ December is the best single month, with the Standard & Poor’s 500 stock index averaging a 1.6 percent gain. The first December after a bear market ends performs even better, averaging 3.1 percent.
_ The S&P has increased an average of 1.5 percent during the seven trading days that start with Christmas Eve and end with the first two days in January since 1950. That’s the widely recognized period for the Santa Claus rally, as first identified in 1972 by Stock Trader’s Almanac founder Yale Hirsch, Jeff’s father.
_ Stocks went up in 12 of the last 15 of those year-end periods.
Ok, so now let’s look at the chart:
One indicator that has remained neutral to bullish is On Balance True Range. This volatility based indicator has turned positive over the past 3 or 4 trading sessions. The 12,26,9 MACD is also showing some signs of life, with a bullish cross over looking imminent if the market can close higher today.
Finally, take a look at the Squeeze Indicator. This indicator is very simple to read. A green dot followed by a series of red dots on the 0 line indicate the “squeeze is on.” As soon as the light red dot appears, you trade in the direction of the histogram. Notice this is the longest squeeze over the past 2 years!
So the question is, can Santa deliver a late Christmas gift to the bulls this year?
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