Daily update 1/5 Failed Santa rally

The famed Santa rally did not materialize this year.  The Stock Trader's Almanac defines the Santa rally as the last 5 trading days in Dec. plus the first two in Jan.  It also says "If Santa Claus should fail to call bears may come to Broad &Wall."   They say a failed Santa rally tends to precede bear markets or times when stocks can be bought later in the year at much lower prices.  This is the first time that Dec. was negative along with the Santa rally since 2007.  With all the warning signs we have of a dying bull market we may very well be entering a bear.  This would be a good time to evaluate all positions regardless of time frame.  It will be very important to see how Jan. ends.

The bears had their way again today.  Here is the daily SPX chart.

We got a short term oversold buy signal today.  This was no marginal signal.  The selling has hit a lot of stocks.  This chart is looking more like a double top all the time.  Not much talk about that despite how obvious it is.  Maybe that is because there is no such thing as a market top.  The breadth was 75% negative indicating the selling was broad based.  There were 92 new highs and 80 new lows.  With the sizable gap down I would not have expected that many new highs.  I believe it has to do with the Jan. affect and small cap stocks.  They are also less affected by the rising dollar then the big caps.  The TRIN closed at 2.26 which is moderately high and might be enough to bring out some bargain hunters in the morning.  Lets have a look at the futures chart.

The futures are testing the bottom of the Keltner channel.  This is a reasonable spot to bounce from.  This is a good example of a reversal from a high ADX level.  Instead of a retest of the high we got a significant reversal as people were caught on the wrong side of the market.  The futures ended the day just over 1 point below the lunch hour low so the selling seemed to temporarily run its course in the afternoon.  We are a long ways from the 18 SMA so a bounce is not out of the question.  I don't think today will be the low for this pullback.  It looks like there is enough damage to see SPX at least get down to its 100 DMA.  If this is a double top then it will get significantly below that line though. 


IWM was holding up relatively well most of the day before caving in the afternoon.  Today turned its short term trend down to join the other indexes. The futures bounced a bit after the market closed and are up 5 points now.  We have a good setup for a bit of a bounce with the oversold condition.  If the futures are still positive in the morning we should get a positive day. Unless we get a super strong bounce I would expect the sellers to show up again at a higher price.  I would be more tempted to buy a gap down then to short it tomorrow.  That would depend on the action in the futures going into the open though.

Today was a fourth down day in a row on SPX.  The streak ends at 264 days.  That is the longest such streak in 87 years.  While last year saw no pullbacks of 4 straight down days the prior low total for a year was 2.  That happened 3 separate times.  The following years saw 7, 10 and 4 occurrences.  I am guessing we might see a few more of those this year.

Bob