Is The Santa Claus Rally Over?

Closing Market Commentary For 12-12-2012

Markets took off like a rocket after the irresponsible Dr. Ben announced QE4. Nothing the Keynesian Feds have done, or will do, will provide a concrete foundation for a stable financial system. Only time will tell if this QE∞ was the right thing to do and I do not believe we have long to wait. (Previous sentence was written as the report came out – guess we didn’t have to wait at all.)

Markets closed down with $SPX just in the green. The demarcation that I wrote about yesterday connecting the past 10 sessions averaged in a straight line was the stopping point today. So I ask, Is the Santa Claus rally over?

First, the low caps didn’t move and the large caps ‘sorta’ melted higher which indicated to me that this rise wasn’t going to last and it didn’t. BUT, before you go out and short, let me remind you we are just about where were yesterday. The markets have to descend below where they left off today to signal the end of the rally.

Interestingly, after the QE4 announcement, the low caps, $RUT in particular, barely budged and remained solidly below it’s resistance while the large caps blasted into the ‘resistance’ zone I described yesterday. The DOW’s resistance, as one example, starts at 13283 and runs to 13401. The DOW jumped up to 13320 and backed off never rising above 13330 signaling the bears have control.

We are truly at a decision point.

@SA:

Wednesday, December 12, 12:30 PM It’s more QE∞ as the Fed launches an open-ended $45B/month Treasury purchase program to replace the expiring Operation Twist. This will be more expansionary than The Twist as that program included the sale of short-term Treasurys to go along with the purchase of longer-dated paper. The other QE∞ – the Fed’s open-ended purchases of $40B/month of MBS – continues.

The RRR** has been narrow at the opening bell for the past several months and continued the trend again towards the close. This continuing trend makes predictions of session movements nearly impossible making trading futile and unprofitable.

As long as market volume remains light or the trading range is narrow, one can expect successful trading to remain elusive. The RRR** has been wider on volatile sessions lately and is expected to become more so as the year ends, but a lot of guessing still remains. Correctly ‘guessing’, of course, is the tricky part of the successful trading equation. Any trades today will probably end up on the meager side of profitability if you are lucky as most trades have been less than optimal during this past year.

I also have issues with some pundits writing almost every day that there are setups for day trading. This may be true enough, but the trading range is so narrow that way too money has to be put on the table just to get back meager gains. Do not fall into the trap of money burning a hole in your pocket, sit tight better days are coming. Watch for increasing volume to signal improved trading.

Swing trading is also at your own risk for all the reasons mentioned above. Because the market is at a crossroads of sorts, I would prefer to sit on my hands as the markets are currently untradable. Guessing where the market is going to be tomorrow or next week, at this time anyway, can be a foolish and costly endeavor.

The DOW at 4:00 is at 13245 down 3 or -0.02%.

The SP500 is at 1428 up 0.64 or 0.04%.

SPY is at 143.34 down 0.10 or -0.07%.

The $RUT is at 829.39 down 5.60 or -0.67%. (The big loser.)

NASDAQ is at 3013 down 8.49 or -0.28%.

The longer trend is up, the past months trend is bullish and the current bias is down.

How Oil Really Gets Priced

WTI oil was up today and is currently trading down at 86.75 trading between 85.75 and 87.65 and the bias is positive.

Brent crude was up today and is currently trading down at 109.57 trading between 108.15 and 110.45 and the bias is positive.

Gold was up this morning. Currently trading up at 1712.43, trading range is between 1707.45 and 1718.80 with a negative bias.

Dr. Copper is at 3.71 down from 3.72 earlier.

The US dollar fell from 80.24 earlier to 79.68 and is currently trading down at 79.94.

** RRR = Risk Reward Ratio

To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

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Written by Gary