The post-Thanksgiving seasonally bullish period ended at the close of trading on January 3rd. This period is a combination of three different seasonal patterns, which began at the close of trading on November 22nd (post-Thanksgiving, January effect, and Santa Claus rally). $SPX advanced 116 points, or 4.5% over that time period. One component of our research indicates that it is usually best to be in the small-caps during this period. However, this year the Russell 2000 ($RUT) only advanced 36 points, or 2.4%. IWM advanced by 3.56 points, also 2.4%. So this year it would have been better to be in $SPX all the way along, rather than in the Russell.
The market blasted into the new year with a strong rally that has dominated the first three days of trading. The strength of this move is evident in the fact that on both January 3rd and 4th, $SPX gapped to new all-time highs. We have mentioned several times in the past how impressive this market has been with upside gaps to new highs over the past year. Thus, the $SPX chart remains bullish.
$SPX remains in a strong uptrend, with all averages rising on its chart. It is going to close out the year well above its rising 20-day moving average -- a moving average that it has touched only once in the last four months. You can't find an uptrend much better than that.
The equity-only put-call ratios had been in a more or less steady decline during this last month, as call buying has reached extremes. Now they have begun to rise from those multi-year lows, generating sell signals.
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.
We have been repeatedly noting that the equity-only put-call ratio charts are at multi-year lows. The charts on the right show visual evidence of this.
These are very long-term put-call ratio charts, extending back 25 years in the case of the standard ratio (upper chart) and 20 years in the case of the weighted ratio (lower chart).
The CBOE will begin trading Bitcoin Futures with Sunday night’s trading (December 10th). These are the basic facts about the contract, as taken from the website (the CME futures begin trading on Dec 18th).
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.
