Santa Claus Rally?
If you don't know by now that December and January are
typically the most bullish months for the stock market,
you might miss the next Santa Claus rally. Already the
stock market seems to be perking up--as it usually does
in the two trading days before Christmas and the four
trading days surrounding the New Year's holiday.
Whether these bullish signs will develop into a real
rally is anyone's guess. Most pundits, at this point,
would say no. Too many earnings warnings, too many
signs of an economic slowdown, too much hesitancy
from the Fed.
Yet, keep in mind that widespread negativity can be
a bullish sign.
To wit: The number of average investors who are
shorting stocks these days--making bets that stocks
will keep falling and hoping to profit from the fall
--is significantly higher than the number of professional
traders who are shorting stocks. And, although the
10-week moving average of this "public/specialists
shorts ratio" is below the five-year average of this
measure, it only trails the longer-term ratio by about
3%. Is this significant? It could be. The last time
the ratio reached the 3% level--in October 1999 and
September 1998--the market took off.
The public/specialists shorts ratio is known as a
"contrary indicator" because it suggests that the
future will contrast markedly from the present--
at least from what the average investor is doing
presently. This indicator certainly isn't perfect.
But we bring it to you today in keeping with the
spirit of the season. Happy holidays, and happy
investing!
Ditto from THG.
