My “nearly-four” year old son has been looking forward to Christmas since about this time last year. When it snowed here two weeks ago he told me confidently that Father Christmas had arrived (although he presumably encountered some reindeer trouble because he failed to deliver any presents).
As our snowman melted into a sad icy lump my son reassured me that Father Christmas would still be able to find our Christmas tree because he had no doubt seen it on the reconnaissance trip he made during the snow storm. He knows this because when Father Christmas visited his school this week he asked him (in his best Italian presumably) if he could find our tree, and Father Christmas (or Babbo Natale) told him that he could. My son is expecting many trucks, cars and trains.
My son is not alone in feeling an extraordinary sense of optimism as Christmas approaches. In fact it seems to me that the financial markets have been artificially buoyed by Christmas spirit. The cycles have started to turn bearish, but the markets have been struggling upwards in a determined effort to give us a bullish Christmas.
In overnight trading before the markets opened on Friday the US Index futures plummeted. They rebounded to some extent before the open, and then spent the day in negative territory. It looks as if the cracks are beginning to appear, and as much as I appreciate Christmas spirit, when the cycles are pushing the market down, I expect the market to do just that.
The unusual market action on Friday created the green bar at the right edge of this chart. It might have been a case of too much Christmas cheer, but I am wary of the bearish signs.
I believe it is useful to keep an eye on possible alternative analyses, and so today in the Nasdaq I am presenting a possible, but less likely analysis in my opinion. This phases the 18-month cycle trough in November, instead of the 20-week cycle trough. This of course implies that we are going to see more bullishness into the new year, as opposed to the bearish outlook that I favor. If we see continued bullishness after the Christmas spirit fades then this analysis will become one to consider.
The Euro has risen to a slightly higher peak, as was expected, following the 18-month cycle trough in July. But we will probably not see a higher peak in the current 20-week cycle.
Gold dropped sharply this week, as expected. It should muster a bit of a rally into the 80-day cycle peak expected early in the new year.
30 Year US Bonds
Bonds remain tricky to analyze, because of the unusual cycle lengths. The peak in mid-November might yet prove to be the peak of the 20-week cycle as discussed previously. This would bring bonds in line with the stock markets (inversely). But it is not impossible that the November peak was of only 40-day magnitude, and that we will see a strong rise into the 20-week cycle peak, as shown here. This would be very bearish for stocks in the near term.
Oil has been quietly beating out a nearly perfect, if rather weary beat. The 40-day cycle trough that I suggested last week can now be confirmed on 11 December 2012. Oil is likely to move down into the new year, towards the 80-day cycle trough expected in mid January.
US Dollar Index
The US Dollar would seem to have finally formed the 80-day cycle trough, leaving a neutral-shaped cycle in its wake. As a result I have returned to the analysis that has the September trough as a trough of the 20-week cycle. Price will bounce out of this 80-day cycle trough, but it will be a bearish 80-day cycle that follows, bringing the dollar into a lower trough in about ten weeks.
No matter what the markets do over this holiday season I do hope that you have a very festive time filled with Christmas spirit. I will be taking a break next week, and will publish my next post on 5 January 2013. I would like to thank you for your support over the past year: it has made the writing of these blog posts feel worthwhile!
If you are a reader of Technical Analysis of Stocks & Commodities magazine then please vote for us in the 2013 Readers Choice Awards here.
I wish you all a merry (and profitable) Christmas season.