Last week the market pretty much ended the week where it started as the S&P 500 closed on Friday down two points for the week. Gold though continued its torrid rise despite more premature calls by various talking heads and Wall Street experts for a major bottom in the dollar.
Once again the opinions of the majority have been proven wrong.
In fact on this weekend once again I cannot find a single person on the Internet who is saying now is the time to buy stocks. Sure - there are people on message boards that are, but I'm talking about writers and commentators. This has been a trend for about a month now. And the more people that are down on the market the harder it is for most people to buy - even to just hold on to what they already have that is working for them.
The fear from last year still remains. The average American lost about half of their retirement account and that's a painful memory for most to overcome. Yes, I do think eventually next year we'll see the market make an important peak, but there is no sign of that happening now. Yes the number of stocks leading the rally is narrowing, but there are enough going up to make some nice money.
In fact this week tends to historically be one of the best weeks of the year, because the stock market almost always goes up the holiday shortened day before Thanksgiving and continue higher the day after Thanksgiving too.
Going back to 1983 the S&P 500 has tended to rally in the days leading into Thanksgiving and continue higher until eight trading days later. After which it would dip a little in the first part of December and then continue higher until the end of the year.
Even last year during the stock market meltdown the market managed to rally into the Thanksgiving holiday and maintain an upward bias through December.
Now I wouldn't base any decisions solely upon these facts. I always look at the charts as my primary indicator.
Right now the S&P 500 has support in the 1070-1075 area while it is overbought on daily stochastics. Below that level it has support in the 1070 area. I am fairly convinced that we'll see the market go higher on Wednesday and Friday - the days between Thanksgiving.
So if the market is going to go much lower it needs to do it today and tomorrow. It really needs to do it today. It needs to sell this gap up and drop.
Even on a chart you can see this, because if the market is going to fall much more it needs to carry over the downside momentum we saw last Thursday and Friday. If it just holds up then it will be in a position to simply drift sideways. That would cause its daily bollinger bands(they are green in the chart above) to come together and lead to a volatility breakout - one that would most likely be to the upside.
Here is the thing though - if the markets has an upside breakout from here it will most likely spark a huge climatic blow-off top rally - a rally that will last for weeks and send the market up another 10-20% by the middle of January.
I know this might sound crazy to you. So many people are calling for big declines right now and talking about how the valuation of stocks or lack of growth in the economy doesn't justify current stock prices.
However, if the market manages to just hold up here and then break to new highs it will completely devastate the bears who think a major top is happening right now.
They'll be forced to cover.
More importantly though all of the nervous nellies - the mutual fund managers, hedge funds, and individual traders - who have been sitting on the sidelines in fear of market tops will start to rush into to buy. The last thing an institutional manager can do is not be invested in a rising market at the end of the year. They rather LOSE money than miss out on something like that. So they'll be forced to buy despite the lack of growth in the economy..
Upside momentum will grow and lead to what would probably be a climatic rally that would end around the start of January earnings season.
Most people don't think about the stock market this way. When the TV is bullish they get bullish and when the talking heads get scared they get scared. Most investors simply follow the herd.
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