Bullish seasonals should prevail this week
It’s been a little while since my
last report. The holidays combine with year-end responsibilities make
it crazy around here. The market has been bouncing somewhat weakly the last two
days after selling off last week into Monday. There are a few things I am
noticing as we near the end of the year.
On the plus side, the seasonal bias is very positive. The
market has a penchant for rallying the last week of the year. Part of this is
due to large institutions propping up their stocks so that their returns look
good. Even if we don’t rally next week, I doubt we’ll see a significant selloff.
Some concerns…
Distribution has crept into the market. Approximately 1/3 of
the time that this happens near a 52-week high, the market will form an
intermediate-term top. The 33% number is much lower than most technicians would
have you believe, but is still something you should be aware of.
As the market sold off last Thursday through this Tuesday, the
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PowerRating) failed to spike and actually remained below its declining 10-day
moving average. When a selloff fails to create fear, it normally means a further
selloff will occur until fear does begin to rise.
The January Effect is a phenomenon that sees small cap stocks
outperform large caps from mid-December through January. Small caps (along with
tech) have been lagging. This isn’t good.
Breadth. It’s been terrible. A small number of large cap
stocks can’t carry a rally for long.
Bottom line is the market is looking more and more like it may
be forming a short to intermediate-term topping formation. Santa Claus may save
us next week, but after that, it looks like it could be a dicey start to the
year. I’ll be back next Wednesday with an end of year summary and my outlook for
2006.
In the meantime, Happy Holidays!
Rob Hanna
For those who may be looking to expand their
knowledge beyond just market timing, my
Hanna ETF Money Flow System utilizes the VIX in generating trading
signals for spread trades.
Rob Hanna is the principal of a money
management firm located in Massachusetts. He has spent the last several years
developing and refining methods for trading in stocks across multiple time
frames. He selects stocks using both fundamental and technical criteria, and
then trades them using technical analysis techniques.