'Tis the Season

 | Dec 22, 2011 | 8:24 AM EST  | Comments
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"Christmas is not a date. It is a state of mind." --Mary Ellen Chase

The market is in a holiday mood this morning and set to open with a positive bias. There is very little news flow and not much action, but that is exactly the right environment for continuation of our Santa Claus rally that finally kicked in Tuesday.

For a while Wednesday it looked like the surprisingly poor earnings report from Oracle (ORCL) might knock us off track, but market players were able to regroup. The Nasdaq and technology stocks still suffered some damage, but the rest        of the market came back quite nicely in the afternoon and we closed strongly.

With money managers hungry for additional relative performance, plenty of underinvested bulls who are out of position, and no major news flow for a change, we are in good shape for positive seasonality to continue. It is likely to be very slow and choppy, but the positive atmosphere should attract some speculative activity as long as the news wires don't surprise us.

One thing I've written about quite often over the last couple of years is the tendency of the market to keep running once we see a turn like Tuesday's. Technically, these bounces and spikes shouldn't last too long and we should rollover again. That is especially true when volume is light, but this market has had a very strong tendency to continue to run up, even as volume declined.

Those low-volume V-shaped moves often frustrate both bulls and bears. The bears because they are on the wrong side of the action and are squeezed, and the bulls because they never see good charts develop and have a hard time finding entry points.

One of the most common complaints I've heard from position traders this year is how much difficulty they have finding good charts. We never seem to have conditions in place that allow bases and good support to develop. We go from oversold to overbought quickly and spend little time in that middle zone, which is where chart patterns tend to gain some weight. The high correlation between stocks just adds to the challenge.

To prevail in the market in 2011 it has been necessary to chase stocks that really aren't that technically attractive and then hold them as they become overbought. When the turn comes, hit the exits quickly or you'll give back your gains in a flash. Many of the standard trading approaches have not worked recently, and I don't expect that to change in the next few days.

We are in drift-upward mode again. There aren't many good charts, volume is light and if you want in you probably have to embrace some less-than-favorable charts. The fact that it is so hard to trust the action is one of the biggest reasons that it tends to keep running.

Watch for what the dip buyers do on an early pullback, but I expect the speculative money to be more active and, maybe, we might even see some old-fashioned stock-picking for a change.

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