We are now in the seasonally strongest time of year for the stock market. December holds one of the best records of any month in the calendar for going higher. Thomas Bulkowski, a 30 year veteran of markets is widely regarded as a leading expert at interpreting stock patterns shows that December is tied for the third best performing month of the year (behind September and March).
Yet, if we remember the action in 2014 there was very little to be jolly about. The first part of December was a nasty 7% drop. The Santa Claus rally did not appear and though we did see a massive two day move of 80 SPX 500 points following the Fed meeting, that rally did not follow-through and many of the higher beta names fizzled and went down hard. That continued right into the New Year as the market bounced around within a wide range.
Now, we often try and glean some information about the future by looking at history. As a technician, I look for established patterns and trends to assign probabilistic outcomes. There is no guarantee of a repeat but if a pattern or structure is strong or weak it is something we can certainly use as part of our analysis. History sometimes repeats but I would caution trying to follow the exact same script.
As my good friend Helene Meisler likes to say, ‘the market teaches everyone to follow a certain pattern and the all the sudden changes it up’. Following the logic of past patterns makes sense but timeframes are always different, as are outcomes.
