About Your "Guaranteed" Santa Claus Rally....   (December 6, 2011)

Will Santa Claus arrive in time to deliver his usual year end rally, or has he decided to trim his largesse to Wall Street this year and instead deliver lumps of coal to Bernanke, Geithner & Co.?

A lot of punters are awfully confident that Santa Claus will deliver his usual year end rally this year. A glance at a few charts calls that confidence into question. Let's take a look at a daily chart of the S&P 500. (Those of you who loathe charts, please scroll down and enjoy the pithy conclusion.)

While charts are as much a reflection of the reader as the market, several things pop out of this chart to me. One is the bullish flag in September. The On Balance Volume (OBV) was rising while price declined, a classic example of bullish divergence. Given this and some other clues (sentiment hit an extreme of bearishness, VIX spiked,etc.), then the rally in October was not exactly "out of the blue."

But when we turn to recent action, the indicators are bearish. OBV climbed to a new high, but price did not even make it up to the previous high--a bearish divergence. Now OBV has plummeted while price has skyrocketed higher, an extremely ugly divergence.

Meanwhile, stochastics are already overbought and VIX (not shown) punctured the lower Bollinger Band, and sentiment by some measures is either neutral or moderately bullish, all of which suggests complacency is once again the dominant emotion.

All these bearish signs have appeared just as price ran into the buzzsaw of strong overhead resistance: the 200-day moving average and the top line of a gigantic wedge formation, which typically breaks big up or down.

Given the lower highs--a classic sign of a weakening market--and the indicators suggesting this last manic rally has run out of steam, then we might reasonably conclude that the big break out of this wedge will be down--and perhaps in a major way.

Consider this chart of the 2007-2011 period from my Chartist Friend from Pittsburgh (who has shared both bullish and bearish charts with me). Notice the remarkable similarity of the pattern that preceded the 2008 waterfall crash and the current price action. Coincidence? Perhaps.

Perhaps the general blithe confidence in Santa's delivery of a rally is misplaced; perhaps he's decided to trim his largesse to Wall Street this year and instead deliver lumps of coal to Bernanke, Geithner & Co. It's something to consider.

If your gift-giving philosophy favors 1) everyday utility 2) durability/high quality and 3) cost between $5 and $23, then this is the list for you: Favorite Practical Kitchen Tools (All Under $23, many under $10, most made in U.S.A.)

If this recession strikes you as different from previous downturns, you might be interested in my new book An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook on any computer, smart phone, iPad, etc. Click here for links to Kindle apps and Chapter One. The solution in one word: Localism.

My Big Island Girl (song)   Thrill the players to bits by buying the tune from CD Baby or amazon.com (99-cent MP3 download)

Readers forum: DailyJava.net.

Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds Kindle edition: Of Two Minds blog-Kindle

"This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later."
--Walt Howard, commenting about CHS on another blog.

NOTE: contributions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

  Thank you, Matthew B. ($5/mo), for your superbly generous subscription to this site-- I am greatly honored by your support and readership.  

Or send him coins, stamps or quatloos via mail--please request P.O. Box address.

Subscribers ($5/mo) and contributors of $50 or more this year will receive a weekly email of exclusive (though not necessarily coherent) musings and amusings, and an offer of a small token of my appreciation: a signed copy of a novel or Survival+ (either work admirably as doorstops).

At readers' request, there is also a $10/month option.

The "unsubscribe" link is for when you find the usual drivel here insufferable.

Your readership is greatly appreciated with or without a donation.
For more on this subject and a wide array of other topics, please visit my weblog.


All content, HTML coding, format design, design elements and images copyright © 2011 Charles Hugh Smith, All rights reserved in all media, unless otherwise credited or noted.

I would be honored if you linked this essay to your site, or printed a copy for your own use.



Making your Amazon purchases
through this Search Box helps
support oftwominds.com
at no cost to you:

Add oftwominds.com to your reader:


My Big Island Girl
Thrill the players to bits:
buy it via CD Baby or
amazon.com (99 cents)

Instrumentals by my friend
and mentor Coconut Charlie:

Crash Course
Secret Asian Man
Third Stone
Tonic Float

Survival+   blog  fiction/novels   articles  my hidden history   books/films   what's for dinner   home   email me