Santa Claus Rally?
Research for Online Investors

12/22/11

Is this a Santa Claus rally, or are we just melting up and trading in the same range we have been in for the last five months? Yes…and Yes. But in the next couple of days that may all be thrown out with last month’s bathwater.

A week ago in our MarketToday article Rally In the Cards, we surmised the market was ready to rally.  We don’t buy the Santa Claus rally silliness.  What we do buy is the U.S. economy is growing.  Corporate profits are holding up and balance sheets are strong.  Earning’s season starts in just three weeks.  The last cog to fit in the great bull machine was the European Central Bank’s Nuclear-Quantity Medicine that was doled out yesterday.

Here is a chart of the SPY etf that represents the S&P 500.

Our chart today covers the last twelve trading days, in ten-minute increments.  We have drawn circles in the chart to highlight the noon hour on each day.

We like to look at SPY rather than SPX because it gives us volume.  Volume tells us if buyers are coming in to the market on dips.  One of the things we noticed in October was big orders hitting the market in the last hour every day.  They are here again, except the guns are not as big.  With the present low volume they don’t have to be.

The artillery is showing up over noon hour, when volume is the lowest.  This allows the most “bang for the buck.”  While many retail traders are gone to lunch and away from their computers, a little juice gets the market moving.  If you can push the market through the upper resistance on a two-minute or five-minute chart then the day-traders take over.  Momentum draws these guys like bees to honey.

From here the market carries itself, bringing more buyers on the boat.  The bottom line for us is the big money is out there.  It is buying stocks.  It is pushing the market higher for better readings at the end of the year.  This sounds like manipulation…and it is.  But pay attention to it and profit from it.

It has been a tough year for professional money managers and hedge funds.  Reports have to be sent out in January.  These quarterly and annual reports will determine if customers stay with their managers or withdraw the funds to try some other hotshot.  A small investment to “goose” the market is well placed.

Smart money is also buying stocks because dividends are higher than fixed income interest rates.  U.S. companies are continuing to grow and report good results.  The U.S. is safer than Chinese markets (accounting problems) and European markets (currency issue).

We will stay with the big money for now and buy the market.  Our subscribers are also selling into this rally.  When stocks hit predetermined highs, why not pull a little money off the table?  One bad headline out of Europe or China can destroy a good thing.

Initial Jobless claims for last week came out this morning.  They were down last week at 364,000.  This is the lowest new claims number since April 2009.  This is good news.  Quarter-over-Quarter Gross Domestic Product (GDP) was released this morning at 1.8%  This was down from previous reports of GDP growth at 2.0%.  This is bad news.

Mailbag:
A timely quote from Mr. Jefferson. How true. Wonder why politicians don't get it.—Long-Term subscriber R.R.

John’s reply: Their feet are not at the fire…yet.  Look at the news.  All they can talk about is a tax cut…what about the deficit?

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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