We didn’t see a rally from the 2d week of December on, when it often arrives and shows strength. Instead, we have started the Classic Santa Rally, which comes in the last five trading sessions of the year and reflects the common rise on light trading during holiday periods. What to look for:
- General rise on light volume into first two days of Jan (to Jan 4)
- January Barometer over first five days – if up into Jan 9 it is bullish
- December Low Indicator – very bearish for year if we break the Dec low (SP1205)
Last year the January Barometer signaled a strong year, and right now the S&P is barely up – and only because of the Santa clause rally starting yesterday! So don’t take this indicators too seriously.
A lot of economic indicators are pointing up. Some should be taken with a grain of salt, like housing (which just got the last four years revised downwards, making recent trends look more positive), but some are interesting. The shale oil surge has changed the dynamic of indicators ike rail traffic, since we are bordering on a net exporting of energy, especially due to LNG. Rail cars shows an increase which has been used to show continued purchasing interest, but in this case may instead be indicating exports.
It also has meant a drop in gas prices, which acts like a tax cut. Even though Q3 GDP was downgraded in its third revision, Q4 is expected to report out higher than expected, giving a spur to stocks in January. When I scan the wave world, it is generally bearish (no surprise), so a warning that we might see a stronger than expected January, have the traditional correction into February, then fly into April or May before the bad economic news catches up with a short-term spur of lower gas prices.