Santa may be late this year, if he comes at all. The anticipated Santa Claus rally that many were looking for has now seemingly become a myth that will not come true. I’ve noticed other traders have performed some research and they say typically the Santa Claus rally is active for the last five trading days of the year into the first two of the new year. After another week of flat action, the bulls are growing more cautious and less optimistic this rally will take place.
The action has been unenthusiastic and boring. Europe still dominates the headlines and it appears inevitable that the Euro will break up. Banks and debt continue to be downgraded with the fear the U.S. will also receive another downgrade. Rick Santelli made a simple math equation showing just how bad our budget deficit is. In the meantime, we continue to add more debt with no plan for reduction in the works. This puts us at risk for another downgrade at any time, but some suspect we may not receive that downgrade until the middle of 2012.
I’ve been cautiously optimistic we would have a Santa Claus rally and lightly dipped my toes in a few stocks. I’ve seen no reason to get aggressive in purchases, so I am mostly scattered with small positions waiting for the opportunity to be aggressive. The money is just not flowing into equities. Bonds continue to increase seemingly daily and that is reducing the chance of a rally. The basic concept is that when bonds are bought, that means less capital available for equities and less risk-tolerance for equities. When bonds are being sold, that many times means market players are in desire of higher rewards, so they will assume more risk to achieve this. The higher the bonds go, the weaker support may be in equities, keeping my hands tied and my market exposure limited.
We have less data this week than the previous one. Tuesday will have housing data in focus. Thursday will have a third read on GDP, which usually means very little changes compared to the second read. Michigan Sentiment may be a more important data point on Thursday. Friday has Durable Goods and New Home Sales, which will be in focus. However, the EU situation continues to trump all of this data, so keep your eyes peeled for any headlines and volume surges.
| Date | ET | Release | For | Actual | Briefing.com Forecast | Briefing.com Consensus | Prior | Revised From |
|---|---|---|---|---|---|---|---|---|
| Dec 19 | 10:00 | NAHB Housing Market Index | Dec | 19 | 19 | 20 | ||
| Dec 20 | 08:30 | Housing Starts | Nov | 600K | 627K | 628K | ||
| Dec 20 | 08:30 | Building Permits | Nov | 625K | 633K | 653K | ||
| Dec 21 | 07:00 | MBA Mortgage Index | 12/17 | NA | NA | 4.1% | ||
| Dec 21 | 10:00 | Existing Home Sales | Nov | 5.20M | 5.03M | 4.97M | ||
| Dec 21 | 10:30 | Crude Inventories | 12/17 | NA | NA | -1.932M | ||
| Dec 22 | 08:30 | Initial Claims | 12/17 | 380K | 380K | 366K | ||
| Dec 22 | 08:30 | Continuing Claims | 12/10 | 3650K | 3650K | 3603K | ||
| Dec 22 | 08:30 | GDP – Third Estimate | Q3 | 2.0% | 2.0% | 2.0% | ||
| Dec 22 | 08:30 | GDP Deflator – Third Estimate | Q3 | 2.5% | 2.5% | 2.5% | ||
| Dec 22 | 09:55 | Michigan Sentiment – Final | Dec | 68.0 | 68.0 | 67.7 | ||
| Dec 22 | 10:00 | Leading Indicators | Nov | 0.3% | 0.3% | 0.9% | ||
| Dec 22 | 10:00 | FHFA Housing Price Index | Oct | NA | NA | -0.1% | ||
| Dec 23 | 08:30 | Durable Orders | Nov | 3.2% | 2.0% | -0.5% | -0.7% | |
| Dec 23 | 08:30 | Durable Goods Orders -ex Transportation | Dec | -0.2% | 0.3% | 1.1% | 0.7% | |
| Dec 23 | 08:30 | Personal Income | Nov | 0.0% | 0.2% | 0.4% | ||
| Dec 23 | 08:30 | Personal Spending | Nov | 0.4% | 0.3% | 0.1% | ||
| Dec 23 | 08:30 | PCE Prices – Core | Nov | 0.1% | 0.1% | 0.1% | ||
| Dec 23 | 10:00 | New Home Sales | Nov | 315K | 313K | 307K |
My game-plan is to not chase anything and stay patient, as painful as that has become. Sounds simple when reading it, but the desire to buy can be a strong addiction to most. Fear of missing out on a rally is a big reason why many market players buy at the wrong times. I continue to search for stocks that are acting well despite the poor market action. Outside of cash, finding stocks that are trading well regardless what the overall market does has been a safe haven for traders. Unfortunately, I can not be aggressive without more clarity. I still have hope for a rally to take place, but I’m growing more wary as bonds continue to be bought. Hopefully, the bond market isn’t indicating something bad is in the near future that could punish the equity markets. Until the bulls show strength, I can not allow myself to deploy precious capital. With that being said, a boring week of low volume and few trades could be what takes place.
Once again, I’m sticking with stocks that are showing relative strength and giving reason to believe they can withstand basic market uncertainty like we see now. Biotech can many times be an additional safe haven.
Caribou Coffee (CBOU)
Glu Mobile (GLUU) (Zynga (ZNGA) Competitor)
Newpark Resources (NR)
Nuance Communications (NUAN)
Pacer International (PACR)
Pier 1 Imports (PIR)
Parker Drilling (PKD)
Santarus (SNTS)
Smith & Wesson (SWHC)
Ariad Pharma (ARIA) (Share Offering @ $10.42)
Net 1 Ueps Technologies (UEPS)
Denny’s (DENN)
Ebix (EBIX)
Flotek Industries (FTK)
Cheniere Energy (LNG) (Share Offering @ $8.35)
Gannett (GCI)
iGATE (IGTE)
Kodiak Oil (KOG)
Mentor Graphics (MENT)
Neenah Paper (NP)
Cincinnati Bell (CBB)
Cambrex (CBM)
Cost Plus (CPWM)
CryoLife (CRY)
Convergys (CVG)
As always, do your own homework to see if you agree. Good luck out there.
Mike
At the time of publication, Kudrna was long LNG, CBOU, FTK, and GLUU, but positions may change at any time.
