The Christmas wrapping paper is at the curb, trader's bellies are churning from ham, chocolate and other treats and the breath stinks of spiked eggnog. The ears are ringing from the rooty-toot-toots and rummy-tum-tums. Children search for batteries for their toys. US stocks reopen for trading today, 12/26/19, the day after Christmas, also Boxing Day and Kwanza. S&P futures are moving sideways at +5 with the VIX at 12.68. The SPX prints an all-time record high at 3227.78 and all-time closing high at 3224.01 both on Monday, 12/23/19. The S&P 500 did not print a new all-time high or new closing high on Christmas Eve.
Trading picks up where it left off. A significant top is expected, which has been the Godot Top during December. The stock market top has been expected for the last month due to multi-year complacency in markets, however, the Federal Reserve keeps pumping stocks higher. Chairman Powell spent his Christmas in the basement of the Eccles Building working the levers and knobs on the Golden Press printing money like a possessed madman.
The uber low CPC and CPCE put/call ratios signal a top in the stock market but the Federal Reserve and other global central bankers easy money continues pumping equities higher. You have to be blind to not see the huge QE (quantitative easing) rally the Fed generated from October to present (that Powell insists is not QE). Open your eyes. Isn't it a hoot that some idiots actually think free market capitalism exists. That's funny. America is best described as a faux free market crony capitalism system. It is a rigged system sure as the day is long. It's not rocket science.
So the idea is to continue to expect the stock market top at anytime. The holiday period has a lot to do with the extension of the upside. You saw the utilities rally big-time last week so you knew the fix was in for upside joy ahead. Keep watching the utes as a major tell on how bad the pending selloff will be.
When a month moves in one direction the whole time, typically the last few days will be in the reverse direction. November had a hiccup after its month of joy. December is all up wall-to-wall on the Fed pump and the happy US-China trade talk. The Whitehouse still needs to provide details on the so-called Phase One deal; as usual, so far, the whole scenario is all hat and no cattle.
The Santa Claus rally period started this week and runs into the first couple days of the New Year. Stocks are typically higher during this period of joy. The new moon peaked for the month about 7 hours ago. Stocks are typically weak moving through the new moon period but as mentioned above but so far green is on the screen.
New money comes into markets to begin a year favoring the bulls. The January stock market guidelines will be bandied about on the business networks over the next couple weeks; if the first day of January trading is up, typically the first week will be up and if the first week is up typically the month of January is up and if that occurs, typically the year is up. Also, humorously, the end of year (EOY) montages will begin on television any day. Of course, the cable news outlets will run the celebrity death montages for 2019 with sentimental piano music playing in the background. Many folks will say, "I thought he was already dead."
Thus, summing up seasonality and other factors, the month was all up so softness would be expected today, tomorrow and Monday and Tuesday to end the trading year. The new moon just peaked which may create negativity in the hours ahead. On the positive side, stocks have wild upside momentum due to the Fed money pump and momo begets momo. The Santa Clause Rally is occurring and new money should come into stocks creating upside buoyancy into next Thursday and Friday, 1/2/20 and 1/3/20. US markets are closed for New Years Day on Wednesday, 1/1/20. The trading factors are battling with each side having ammunition.
The chart remains in the same relative shape over the last month, wanting to pull back but continually nudged higher on trade deal hype and Fed QE money pumping. The RSI and stochastics are overbot agreeable to a pullback. The red rising wedge pattern is ominous since the collapses from rising wedges can be quite dramatic, quick and eye-opening. The chart indicators, RSI, MACD, histogram, money flow and ROC are all in negative divergence signaling that price does not have anymore upside oomph.
Price has violated the upper standard deviation band (yellow) so the middle band at 3161, and rising, which is also the 20-day MA, is on the table as well as the lower band at 3082. The S&P 500 is clearly extended above its moving average ribbon requiring a mean reversion. The Aroon green line is pegged into the overbot ceiling with nowhere to go but down perhaps setting up the negative cross in the days ahead.
The 150-day MA is sloping higher showing that the bulls are in charge. In addition, the ADX sneaks above 30 which begins indicating that the upside rally is a strong trend. It took 3 months of the Fed printing money like madmen to send the SPX high enough for the ADX to only just begin hinting at a strong trend higher ahead. The 3-month rally is bot and paid-for by the Fed. Note the prior moves higher in the ADX indicating a strong trend were for the moves lower in August and late September and early October, right when the Fed panicked as usual and began printing money.
So the beat goes on. Interestingly, the thinking always is that when confidence and trust is lost in the Federal Reserve, all will be lost, which is true, but Chairman Powell already changed course performing a less-than-skillful pirouette during the back-half of last December and early January. The dolt raised rates professing more hikes ahead, only to reverse course a couple weeks later, flapping dovish wings, proclaiming that easy money and rate cuts are on the way. That was the time to lose faith and confidence in the Fed and yet, once they started providing easy money accommodation again after the 1/3/19 panic selling, and in concert and collusion with the other global central banks (BOJ, ECB, PBOC, etc...), the stock market sets record highs. Then the Fed hits the afterburners from October to present worrying about a credit event occurring in markets. What power the Federal Reserve possesses. Kneel and Worship at the feet of the Central Banker God's.
Thus, if traders and investors could not care less about the Fed flip-flopping and moving in the direction the wind is blowing at any given minute, when does the party end? As evidenced clearly in 2019, all that matters is the Fed's easy money ways and an expanding money supply. Do you understand this or are you stupid? The world is awash in liquidity pumping all asset classes, including stocks, bonds, real estate, vineyards, art, collectibles, antique cars, etc..., into bubble territories.
This thought experiment makes one believe that the roll-over and multi-month and multi-year decline in the stock market will only occur once the money printing (expanding money supply) ends. Well, more correctly, it will likely not end only trail off. In fact, right now is similar to the late 1990's path. The Fed stepped into markets providing a money pump and support for stocks (always to protect the wealthy elite class) back then and equities enjoyed a nice rally, like now. But when the Fed tried to take the candy away, the stock market took a hissy fit. The stock market is a drug addict now and can only survive on more and stronger Fed heroin.
The watch for the Godot Top continues. Today we see if the new moon packs enough negative punch to knock Santa Claus off his sleigh. The expectation is for a significant drop in stocks going forward. Keybot the Quant remains long and strong so one of the tells that the down direction is likely to continue and accelerate will be when the quant flips to the bear camp. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note Added 10:06 AM EST: At 9:48 AM EST on Thursday, 12/26/19, the S&P 500 prints a new all-time record high at 3231.99, the highest number ever recorded in history. Floor traders are carrying Chairman Powell on their shoulders while cheering, singing songs and buying stocks. The wealthy elite class nods approvingly at the Fed members letting them know that a little extra will be in their Christmas cards this year rewarding their dovish path. The beat goes on in crony capitalism America.
Note Added Friday Morning, 12/27/19, at 5:00 AM EST: The S&P 500 prints a new historic all-time record high at 3240.08 and new all-time closing high at 3239.91. Traders sing praise to the Federal Reserve's expanding balance sheet. Humorously, Chairman Powell must be sweating like a pig over the price action. Powell is pumping liquidity into the financial system like a madman worried about an end-of-year credit event. There are three trading days remaining in the year, today, Monday and Tuesday. The fun will begin in early 2020 when the Fed tries to take the easy money punch bowl away. Alcoholics do not respond well when you try to take their booze away.
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