I suspect much of this year’s
first-half-December weakness was the result of heavier than usual
tax-loss-selling pressure and Fed rate jitters.
Raymond James chief
investment strategist Jeffrey Saut said that “the market has the potential for a rip
your face off-type rally! It’s human nature to read into negativity, what
happened last Friday, but it really doesn’t deconstruct the bullish case right
here. You’ve got massively oversold conditions in the equity markets. You’ve
got a December’s option expiration in the trillion plus dollars that everybody
is worried about – it typically has a bullish tilt to it…. The setup is pretty
good for a rally to the upside that's going to surprise a lot of people. I
think you could make new highs by the end of the year – new all-time highs.”
Typical
first-half-of-December weakness was a bit magnified this year. The lackluster
performance of the stock market this year, Fed-rate-hike handicapping, new lows
in crude, and a mini-run on junk bonds all exacerbate normal yearend tax-loss
selling. But this appears to be setting the market up for a yearend Santa Claus
Rally.
The Santa Claus Rally is a
very important signal as to what to expect in 2016. Yale Hirsch defined the Santa
Claus Rally in 1972 as a seven-trading-day period that spans the last 5 trading
days of the year and the first two of the New Year. If the Santa Claus
Rally does not happen stock markets are usually negative, flat or suffered a
bear market.
The other reason the Santa
Claus Rally is so important is that it helps drive up beaten down bargain
stocks.
Investors tend to get rid of
their losers near year-end for tax purposes, often hammering these stocks down
to bargain levels. And this year is a pretty good example. Over the years the NYSE
stocks selling at their lows on December 15 will usually outperform the market
by February 15
of the following year.
If it does not transpire it
is not a great sign for 2016. Stay tuned!
No comments:
Post a Comment