Here we go again.
The Wall Street cheerleaders are telling investors that the perennial Santa Claus rally is now fully under way.
Yet, a closer review of stock-trading activity paints a different picture.
Not only has the S&P 500 Index traded at lower highs and lower lows since the second week of October, fewer and fewer stocks have been participating in recent stock market rallies.
In fact, the Advance-Decline Line (the number of stocks advancing in price less those declining in price) has been trending lower since early June.
I would argue that Santa actually did a head fake on Friday and again today when the major stock market averages rallied.
By the way, in addition to its sports definition, the term "headfake" has a financial meaning – a headfake is a trade placed by a market-maker that leads other traders to believe a stock (or stock market index) is moving in a direction opposite to its actual movement.
But, please, I'm no Grinch trying to steal Christmas.
Rather, I'm just looking out for your interests while the Wall Street investment bankers enjoy the holidays with their huge bonuses – bonuses that many of those bankers made by selling short stocks of homebuilders and mortgage companies.
I continue to urge you to not buy into the supposedly "good news" that is regularly propagated by the self-serving investment bankers and money managers.
As I've repeatedly stated over the past couple of months, a preponderance of data suggests that stock prices in general will continue to trend lower in the months ahead. In fact, my models indicate that stocks will fall precipitously between January and March of next year.
Rather than go into all of the details supporting my analysis, I would rather end this year on a positive note. My models indicate that there will be some great bargains later next year, especially in the financial and small-cap sectors of the market.
That being said, I wish all of you a merry Christmas and a very Happy New Year!
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