Rev Shark:
Joyful Time of Year Doesn't Assure a Rally
11/21/2005 8:47 AM EST
"Once again, we come to the Holiday Season, a deeply religious time that each of us observes, in his own way, by going to the mall of his choice."
-- Dave Barry
The good mood and positive sentiment around the holidays can make for so very interesting trading. With the ranks thin and with a upbeat buying mood, there can be some excellent trading opportunities for those who are aggressive.
What makes things a bit tricky is that we have already made a strong move off the October lows, and the extended indices could use a rest. On the other hand there obviously are a lot of buyers who have missed out on this move and are chasing the market higher. They are jumping on any dip to put money to work and that is keeping the market from undergoing any meaningful correction.
The market action is quite similar to what we saw last year. After finding a low in October the market blasted off in November and went straight up until the end of the year. We barely paused at all during that two-month run. There were a couple one-day pullbacks but we didn't see any significant downside action until January.
Can we expect this holiday season to be similar? It is always dangerous to assume that the market will repeat what it has done in the past because every year is different. Last year we were talking about deflationary risks, the hot housing market and strong commodity prices. This year it's inflation, cooling housing and some rotation out of commodity stocks.
But one thing hasn't changed and that is the inclination of market participants to be positive and in a buying mood around the holidays. That sentiment can easily trump any of the fundamental negatives you might want to throw at this market. The market is strong, we have the holidays and we are ready to spend some money, so don't be too quick to underestimate what may seem to be superficial emotions.
The main thing to keep in mind about this market is that it has extremely strong momentum. The buyers just keep on coming and the bears have barely managed to put a scratch on the action. The biggest worry we have is that the bulls are going to use up their buying power but there has been no indication of that yet.
While we can't throw caution to the wind we have to continue to give the benefit of the doubt to the bulls. Don't forget to lock in some gains and to keep some buying power ready for opportunities, but also don't be a grinch and anticipate doom and gloom when the action is so obviously positive.
We have a slightly positive start to the day. Asian markets continue to hit their highest point in over five years. European markets are mixed. Oil has bounced higher and gold is strong. Keep on gold stocks they look ready for a run.
Gary B. Smith:
