So
far the Santa Claus rally has lived up to expectations, delivering a 2% gain so
far in the brief window that encompasses the historical season. Keep in mind that the Santa Claus rally
season began on Dec. 26 and ends on Jan. 3.
As
I pointed out in the previous report, the Santa Claus rally phenomenon has
resulted in a net market gain 75% of the time for an average gain of 1.5% since
1950. Whenever the market has failed to
rally during this seasonal period it has tended to produce bear markets at some
point in the subsequent year. This has
led to the famous saying, “If Santa Claus should fail to call, bears will come
to Broad and Wall.”
Although
I see no reason to doubt that the Santa Claus rally will once again deliver a
net gain for stocks, there is already a reason for concern as we head into
2014. The yield on the benchmark 10-year
Treasury exceeded the psychological 3% level on Friday. Once Wall Street traders return to work after
the holidays we could witness a reaction to this developing since stocks
generally don’t like rising rates (i.e. falling bond prices)….
Once
the initial upside impetus from the interim cycle dissipates in a few days the
market will be potentially vulnerable to selling pressure. The bears have been waiting restlessly for
their chance to pounce after being routed for the last 10 weeks. There are preliminary warning signs [deleted
in fairness to subscribers]….
The
10-year Treasury Yield Index (TNX) has reached its highest level since July
2011. Sustained rallies in TNX normally
end with equities coming under pressure sooner or later….[Excerpted from the
Dec. 27, 2013 issue of Momentum
Strategies Report]
