James Hemenway | Kalamazoo, MI

As a follow-up to my comments Wednesday about the legendary “Santa Claus Rally,” when asked “Why... why does this occur?” one reason, under normal circumstances, may be related to “end of year – new year reinvestment dollars” being put to work. Granted 2008 was far from normal, but this may have been a reason for Wednesday’s 108 and 26 point gain by the DJIA and NASDAQ, respectively.

Additionally, the Dow Jones Utility Average (UTIL/370.67) is signifying improving buying interest (demand). I think it moves higher, short-term. A move below 353 would be a warning sign and below 339.45 would make this observation “null and void.”

Shifting gears and looking at the commodity market, precious metals remain one of the stronger areas of the commodity market. Having recorded some “short-term profits” in both Gold and Silver, I want to mention that Platinum ($941.50) has completed a short-term bottom, as shown in the following chart and looks higher.

Conclusion

On the NYSE Wednesday, 1.28 billion shares traded. However, advancing volume beat declining volume, by a ratio of over 4-to-1. Additionally, there were 2156 net advancing issues. New 52-week highs (14) lead new 52-week lows (13). Slowly, but surely, more and more stocks have been developing new underlying bases and are acting better than the major indices. This observation is evident by the 90-day chart, depicting the NYSE Composite (NYSI) and the NYSE Advance- Decline (A-D) Line (traditional figures), shown in the following chart. As long as this continues (Investor’s Business Daily shows the daily A-D line), it implies more “topside opportunities” are showing up and the potential to indentify emerging “leadership”.

Finally, for some “talking points,” here are some statistics, wrapping up the past year and the new one.

From the Web site “chartoftheday”, “Dow was down 33.8% in 2008. To put this year's performance in perspective, today's chart illustrates the 15 worst calendar year performances of the Dow since its inception in 1896. As today's chart illustrates, the Dow's performance in 2008 ranks as the third worst on record. Only 1931 and 1907 endured greater declines. It is of interest that major banking crises occurred in 1931, 1907, 2008, and 1930 – the four worst calendar years on record in terms of stock market performance.”

Wednesday Morning 12/31

When I left the chilly “North” yesterday, the DJIA was up approximately 55 points. When I arrived in sunny Florida, the DJIA had closed higher by 184 points. What I did find impressive about the past few trading sessions has been the stock markets ability to continue to absorb and contain negative news. On the NYSE volume expanded to 943 million shares. There were 2015 net advancing issues and nine new 52-week highs. While this figure (new 52-week highs) remains dismal, I am slowly finding more and more stocks that are recording multi-week basing patterns.

As a “meat and potatoes” technical analyst I try and keep my analysis simple and basic, placing more emphasis on price and volume than anything. However, while out of the office over the past few days, I heard the news media frequently discuss the "Santa Claus rally." The source of this statistical study, discovered in 1972, comes from a book I have collected each year for close to two decades, titled the Stock Trader’s Almanac, 2009 Edition.

According to the “Almanac” a “short, sweet, respectable rally within the last five days of the year and the first two in January” tends to occur. “This (period) has been good for an average 1.4% gain (defined by the SPX) since 1969. ‘Santa’s’ failure to show tends to precede bear markets, OR times stocks could be purchased later in the year at much lower prices.” This study proved accurate in 2008.

This year, that period started on Wednesday, December 24 and ends on Monday, January 5. The S&P 500 (SPX/890.64) closed on Tuesday, December 23rd at 863.13.

In addition to the “Santa Claus rally,” you’ll also find another statistical study called the “January Barometer,” devised in 1972, in the Stock Trader’s Almanac. The study states that “As the SPX goes in January, so goes the year. The indicator has registered only five major errors since 1950, for a 91.45 accuracy ratio.” “Including the ten flat years (less than +/- 5%) yields a 74.1% accuracy ratio.” This study proved accurate in 2008.

Again, while I place much more emphasis on “price and volume,” followed by “sentiment,” I felt you would find these statistical studies interesting and a source of conversation, as the New Year begins.

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Weekly Technical Commentary by Art Huprich

Friday Morning 01/02

Conclusion

Wednesday Morning 12/31