December In Review: What Was Hot And What Was Not

  • December 29, 2004
  • Rob Hanna

With the end
of the month once again upon us, below is my general market overview —

Positives
—

New Highs vs. New Lows
— Breadth has remained overwhelmingly positive.  New highs have been
consistently strong and new lows have been near non-existent.  Tradable
opportunities have also been abundant on the long side.

Foreign Markets
— Foreign markets have continued to rally strongly this month.  I’ve noticed
some exceptional strength in Europe (Italy, Belgium, Switzerland) as well other
countries like Japan, India and Turkey.

My growing watch list
— More stocks continue to make it through my scans each week, and every day I’m
seeing new bases complete.  If the market advance can continue, there should be
no shortage of tradable stocks setting up and breaking out.

UUWNHI (Unofficial,
Unscientific, Working / Not working Hanna Indicator) —
Nearly any excuse to get long lately has provided profitable opportunities. 
This includes both breakouts, which have been abundant, as well as pullbacks. 
Conversely, most short-selling strategies have been punished.  With most major
indices at or around new highs and breadth very strong, you’ve been swimming
against the current if your trying to short.

Neutral
— 


Accumulation/Distribution — On December 16th
and 17th we saw some institutional selling enter the market as the
market sold off accompanied by high-volume.  Rather than leading to further
selling, it proved to be nothing more than a pullback opportunity.  Since then,
holiday trading has taken over as the market wiggles around on relatively low
volume.  We probably won’t see much evidence of either accumulation or
distribution until Wall St. is fully staffed again after the New Year.

Negative
—

Sentiment
— As you all know, I normally tend to put very little emphasis on sentiment
readings.  I find many of them less reliable than many of the other technical
market indicators I look at.  That said, this is the first time since I began
writing this column two years ago that sentiment really has me worried. 
Investors Intelligence survey released today showed the percentage of bulls at
62.9%.  That’s the highest level since 1987.  There were never this many bulls
even during the bubble in ’99 and ’00.  With bears below 20%, the gap between
the two is now extremely wide.  On top of that, the put/call ratio for equities
has recently been hitting its lowest levels since the Nasdaq peak last January. 
Shorter-term sentiment indicators like the VIX and VXO are trading near the
middle of their recent ranges, and we are still in a seasonally strong period,
but the warnings the other sentiment indicators are flashing should be heeded.

Overall, the market still looks
very strong.  As I listed above, there are many positives out there.  Sentiment
is beginning to worry me quite a bit, though.  It would therefore not be
surprising if the market underwent a sharp correction in the not-too-distant
future.

Sector Action

Semiconductors, which have
lagged during the recent rally and have greatly underperformed the market in
2004, have shown some life in the last two days.  The $SOX.X and SMH are being
squeezed by their uptrending 50-day SMA’s and their downtrending 200-day SMA’s. 
This squeeze will need to be resolved soon as they are on a collision course.  A
decisive move up through the 200-day SMA could spark a nice run, especially if
the market can continue to rally a bit longer.  According to the Stock Trader’s
Almanac, January is typically a very strong month for Semis.  They have an
average January return of 8.2% since the Almanac began tracking this.

Internets have continued to
rally higher after the pullback noted here last week.

In other action, the Hanna
ETF Money Flow System* closed out the two long PPH / short SPY spreads that
were put on last week.  Both triggers made money, with the more profitable of
the two being the 12/21 trigger, which saw the PPH rise about 3.1% while the S&P
only advanced 0.8%, for a nice little profit on the spread.

Best of luck with your trading
and Happy New Year 

Rob


robhanna@comcast.net

*Since October 12th
the Hanna Money Flow System has had 7 trades trigger.  Six of these seven
trades were spread trades, while the other was a long-only trade.  All seven
trades were profitable.  If you would like to learn to trade a breakthrough new
strategy that looks to anticipate institutional money flows, then check out my


Hanna ETF Money Flow System.