Tuesday, November 23, 2010

Nov 23: Let's not forget that Santa Claus rally

As markets tap -- alright, hit -- the brakes in today's pre-market (v/v the NY behemoth) trade, consider this a public service: check the calendar; it's late November; tryptophan, Black Friday, Starbucks Egg Nog lattes (ick, I know...!), suddenly crowded airports, and of course, "All I Want for Christmas Is You" cruelly playing on perpetual repeat all suggest one fact: Santa Claus rally season is here!

Yes, this is that special time of year when markets become positively biased towards the upside. Volumes dry up, investors become even more delusional than ever, and markets tend to tip-toe higher, .4% here, .1% there. It's a suboptimal time to be aggressively short; options bets on volatility (e.g. long straddles) can also go awry.

And so, with the /ES contract down 13 in overnight trade, testing anew the support channel reached during last week's sell-off, now might be an opportune time to don those contrarian thinking caps and crack open a can of cranberry relish.

Here's the /ES:

Additionally, let's quickly consider the technical picture on the 180-day of BRCM. Here's a position where the chart supports a robust (S&R levels are tested repeatedly) and elegant (limited S&R areas define much of the price action) technical analysis picture.

As the reader can herself see, price is currently nestled against an upward sloping price channel, suggesting a potential near-term pull-back, and not inconsistent with the slumping morning futures trade. Over the time frame of one to three weeks, however, the chart strongly suggests further price appreciation, at the very least to the top-most price channel, i.e. the $45-46 level.

To summarize in brief, then, it's not every NYSE issue whose trade maps such a robust and elegant, v/v technicals, chart. I might have to print this one and mount it on my wall and gaze lovingly at it. Alright, maybe not the last part.

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