The stock market euphorically gapped to new all-time highs on Monday, after the Tax Bill had been passed over the weekend. Pessimists might say that a gap to a new all-time high, on "the news," is a selling opportunity. They might be right, but it's really to soon to tell. One would have to see $SPX break some support areas before that could be confirmed. The bottom line is that the intermediate- term trend of $SPX is still up.
The idea of a seasonal pattern called The Santa Claus rally came from Yale Hirsch more than 50 years ago. Simply stated, it says that the market generally rallies over the period including the last five trading days of one year and the first two trading days of the next year. On average, the rally has been about a 1% move – nothing great, but certainly worth trading. The seasonal period has just begun for this year: at the close of trading yesterday, Thursday, December 21st.
...Both the equity only and standard put-call ratios plunged to historic lows on Monday as the market gapped to new all-time hights and held on to the gains.
Put buying was heavy enough on Tuesday and Wednesday that a small upward “curl” appeared on both of the equity-only put-call charts and the Total put-call ratio chart. This by itself is not meaningful, but if these ratios begin to trend higher, that would represent confirmed sell signals for the stock market...
The most important technical indicator -- the chart of the S&P 500 Index ($SPX) -- remains steadfastly bullish. It has continued to rise, establishing a myriad of support levels while doing so. Since August 28th, there has only been one day that this Index has even closed below its rising 20-day moving average. That is a strong uptrend.
Despite some selling early in the week (that seemed to be more of a reaction to a short-term overbought condition than to any real change of trend) $SPX still remains well above its rising 20-day moving average. It has closed above that MA every day except one since August 28th! As I've said before, that is impressive. So the trend of the $SPX chart is bullish, and that is the best intermediate-term indicator that we have.
The post-Thanksgiving seasonal period got off to a rousing start perhaps too rousing. The $SPX chart remains positive as long as it holds above support. The first support level is at 2600, which is the recent highs and also near today's (Friday's) lows.
The stock market has signaled that whatever was holding it back for the past couple of weeks ("correction" would be too strong of a word) is over. $SPX and all the other major indices have broken out to new closing and intraday all-time highs. This includes the previously-lagging Russell 2000 Index ($RUT, IWM).
$SPX remains in a bullish trend, despite breaking one support level this week -- a level which it quickly recovered. There is support at 2557 (Wednesday's low, from which prices have rallied over 30 points in a day). Below that, there is support at 2545 (the October lows), and then the major support at 2510 -- the September highs, and the area which launched the current leg of this long market rally.
The $SPX chart in Figure 1 is still a bullish chart. The moving averages are all trending higher. There is support at 2544 (this week's intraday reversal low), with more important support at 2510 and 2480. A close below 2510 would be somewhat bearish, and a close below 2480 would change the chart to an outright bearish one, in my opinion. But at current levels, there is room for a modest correction without completely rolling over into a bear market.
