December has arrived and once again it is time to revisit our long term charts. The fastest moving sector by far are equities which managed to stage a rather impressive reversal off their mid November lows:
The point & figure chart expresses the velocity of the November drop & pop rather well. At this point the bulls have a lot going for themselves, let’s review: For starters the SPX satisfied the bearish price objective and then some. This was followed by a merciless short squeeze which two weeks ago triggered a low pole reversal warning. That pretty much put the bearish case on notice but there was still hope for the grizzlies until 1400 was reconquered during a low volume Thanksgiving Friday.
Although I have short term reservations (see my Friday update regarding a possible short term shake out on the horizon) the long term picture is looking pretty positive right now. On the weekly panel we completed our second week above the 25-hour SMA. On the monthly the bulls managed to finish November in the plus – but just barely.
This however slightly changes my 2009 – 2012 bull market chart as the new count only leaves October as a monthly lower close. And that means the current leg of the long term uptrend has now completed its sixth candle. I am yet unsure about the implications and I reserve final judgement until I see how much follow through we get after Christmas.
Seasonally we are now heading into week 49, a.k.a. as the ‘pre-Santa-Rally-shake-out’. Based on what I saw on the volatility front I expect a bit of a pull back before we dash off into the final weeks of the year, which obviously are traditionally very bullish.
Something that has puzzled me a bit during the recent shake out was the complete lack of volatility. Complacency among investors appears to have returned to pre-crash territory. Astonishingly we never even closed above VIX 20 and the overall consensus among equity bulls seems to be that Fed has their backs, no matter what. Admittedly the sell off only lasted for about 130 handles but the utter lack in response on the volatility side is a bit concerning. I have made this point before – a market without bears is a very dangerous environment to be bullish in. For when things hit a snag there is nobody in between to soften your fall. Black swan events don’t happen when everyone is worried – they strike when everyone has forgotten about them. Curiosity may kill the cat but complacency is what does the bull in every time.
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