Zak Mir – Has The Grinch stolen the Santa Rally?

There are just three primary issues for the equity markets as we close out the year as far as I am concerned. The first is will Santa make his regular occurrence in the second half of December. The Santa rally refers to the trading days running upto the festive break.

The second issue is that while there may indeed be a “momentous” Federal Reserve meeting next Tuesday & Wednesday in which tapering of some magnitude seems to be a “dead cert”, I personally think this would be something of a Scrooge like move on their part and so I am in the minority “no tapering” camp. With the Great Dove Yellen on her way within weeks the question is why would they taper now? As ever, time will be the arbiter…

The third issue, and one which is the most closest to my heart as a chartist is that the main indices have now largely fallen back to the logical support points one would have mapped out for them as potential new entry points on the long side. For instance, as far as the Dow is concerned, resistance on the way up over the autumn was seen around the 15,800 level, and while we have overshot below this number slightly, one is almost obliged to go long at or just below current levels in the hope that per classic ta theory, former resistance will become new support. It is a similar picture as far as the FTSE 100 is concerned too where the main 2013 uptrend line from the middle of the year runs through 6,450 and this is currently the battle ground between bulls and bears.

Ordinarily it could be said that one would want to keep an open mind as to whether the likes of the Dow or FTSE 100 will bounce from present levels – even if you are not able to distract yourself from the ongoing tapering fears. However, I would venture to suggest that as we go into the second half of December next week, and after seeing festive minded bulls get surprisingly harsh treatment so far this month, those brave bulls leaning on history and going long the leading have a good chance of a Xmas pressie from the markets.

Of course the main area where the last stubborn bulls look to have thrown in the towel is the miners and the Gold & Silver market, and where we are very much in the aftermath of a bull trap flush out above $1,251 October support. The message from the market in this respect is that there is still a distinct lack of any seasonal goodwill and fears of actual deflation and not inflation is now setting in.

Let is focus on a couple of indices that appear to be both fascinating and frustrating in equal measures! In the case of the German Dax we have quite a sharp pullback from the top of a rising trend channel going all the way back to June of this year with the floor of the channel just below the 50 day moving average at 9,038. The implication is that at least while there is no end of day close back below the 50 day line we should be looking a new leg to the upside and rebound back towards the 20 day moving average zone at 9,211. However, caution is required as the market does look to have begun a topping out process. For bulls, any end of day close back below the intraday low of last week at 8,984 would change the short term recovery picture.

Finally, it may be argued that the Nikkei has offered traders one of the easier rides in terms of trend following this last 12 months. The reason for saying this is the obvious fundamental combination of the falling Yen and the set up provided by the rising June price channel on the daily chart. The implication here is that at least while there is no end of day close back below the 15,112 intraday low of December to date we could see the Japanese index hit the top of the 6 month price channel at 16,700 as soon as the end of next month.