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Jeffrey Saut: The call for this week

* January 3, 2017

Unless the equity markets rally sharply today and tomorrow, we did not get a Santa Claus rally (SCR). Recall, the SCR is the seasonal tendency for equities to rally during the last five sessions of the year through the first two trading sessions of the new year. Many pundits take the lack of a SCR as an ominous warning for stocks; we do not. Admittedly, we did not get an SCR in 2015, and we got a “trapdoor” decline into the SPX’s February 11, 2016 “low” of ~1810. That decline also rendered a negative reading from the January Indicator (so goes the first week of the new year, so goes the month and so goes the year); and, the first week, of 2016 was down as was the month of January. As well, the January Barometer (if the December closing low is violated any time in the first quarter of the new year, watch out) registered a negative signal when the December 2015 closing low was “taken out” on January 4, 2016. Despite that cacophony of negative signals, our models flipped positive on February 5, 2016 “calling” for a market bottom the next week. From that week’s low (1810) the SPX gained ~23.7% into last Friday’s closing bell . . . not bad! So, our intermediate-term model called the recent rally, from before the election, no matter who won. We have to admit that the Trump win accelerated the envisioned rally. Subsequently, our short-term model called for a trading top the week of 12-11-16 and was “looking” for a bottom into late last week with a +/-5 session variance. Since mid-December, the SPX has pulled back about 1.5%, and that “stall” has permitted the stock market’s “internal energy” to rebuild to almost a full charge. This suggests our intermediate-term model’s “call,” prior to the election for the equity markets to trade higher into late January/early February, is still enforce. If that pattern proves correct, the models then look for some kind of downside attempts beginning in late January, which do not get very far. Our long-term model has not varied since March of 2009 in that we are in a secular bull market that has years left to run. And that’s the way it is on session 36 of the “buying stampede.”

http://www.raymondjames.com/pointofview/market-mantras

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