The Santa Rally May Have Started

The bounce off the opening low today may signal the beginnings of a multi-week Santa Rally. We have been following a count by EWI, that we are in a wave 4 expanding triangle. It required a final leg down to around Dow10231, and it got to 10236 today. Tonight's STU thinks this could be good enough to conclude the sideways motion for the past four weeks. The wave structure would also allow for a final jink up and jive down to below 10231 as well. 

Such a jive down could get out of control, given other items they are watching, including sentiment, volume and overseas markets. They too have been watching what I pointed out in the prior post: the Dubai disease is spreading in Euroland, to Greece, Spain, Latvia, Lithuania, and possibly even Austria. 

Global equity markets are beginning to diverge, with many falling and some (like Greece) crashing. This sort of divergence is to be expected near a top. 

Back in the USSA (the extra S for Socialist), markets may have popped today on some good inventory news, albeit from Oct data. Inventories had fallen the most since the 1930s, but have now begun climbing back. See charts from Northern Trust's analysis: 

The caution is this restocking was expected, and was used to prepare for the holiday sales season. It was also driven by cash4clunkers, and after that treat we were in for the trick of how to maintain car sales. They plummeted after C4C then have stabilized a bit. 

After the holiday sales season, inventories can be expected to slacken again. 

We might get a hint in early January, as new product needs to be in the pipeline well before December. We will get confirmation in Feb when the Dec numbers come out. The timing of these later reports support the scenario of a Santa Rally followed by topping in January or at worst into February.

Another bit of caution comes from more solid Black Friday retail numbers than the pumpers' flash estimates, and as Karl Denninger so elegantly puts it, they suck:  

The NPD Group’s Weekly Tracking Service, the industry source for actual point-of-sale data (POS) from Black Friday.  Total revenue for the week of Black Friday was slightly more than $2.7 billion, down 1.2 percent from 2008, but an improvement over the 3.4 percent decline noted last year. 

Worse, prices are down considerably. This supports my thesis that retail will be late and discount-driven:

We are also seeing some reconsideration of the November "good" jobs report. From DowJones MarketTalk, we have this confession: 

So even if you buy into Friday’s jobs report, the fact remains that hiring has not picked up, which is confirmed by the fact that long-term unemployment continues to rise.

And if you don’t buy into Friday’s report, well, you’re not alone. I’m still dubious. And certainly Fed Chairman Ben Bernanke didn’t think it was strong enough to get him to even hint that he might lift interest rates off the floor. And other folks are still deconstructing it.

East Shore Partners’ Frank Veneroso, who initially called the November jobs report “super strong,” is rethinking that position today. He was initially impressed by the increase in the work week and the upward revisions to prior months. But “after thinking about this for several days, I realize I may have overstated the implications for recovery strength.”

We are still not done with this retail season, and the jobs report may not be that good but it isn't that bad either. In general we see signs of a real recovery, and short of that certainly are falling less fast. The pundits are in effect scratching their heads. All this seems to set up the Santa Rally followed by a January disappointment, probably confirmed in early Feb with a bad jobs report after all the seasonal adjustments are done, and maybe a weak inventory report as well. 

In the meantime, Amazon comes out as the best online shopping site, according to the WSJ. Don't worry, be happy! Shop online!

Comments

[Michael]

Interesting.

EWI concludes that the sideways correction since Nov. 19th is now complete at today's lows and that the market should rally out of this wave structure. And their still 200% short???

[Hank Wernicki]

Good question, I see the market going higher into February ....

[EN]

It always pays to fade the STU; glad they are short-term bullish since I am short.

[Brian]

Meh... they are hedging.
Claims: the dollar has bottomed and gold has topped, but stocks still have up-side potential.
One of those predictions will come true and qualify for a "we told you so" later.

[joe]

I predict - whatever bump in subscriptions Prechter had recently - will reverse.

[graspthemarket]

Retail stocks that been in slow decline since late Oct. (give or take that date). These stocks are saying that the Christmas season doesn't look good for them: M, JCP, AEO, COST, JCP, KSS, TGT, OMX, ODP.

But a few tell of different story: AMZN, WMT, BBY

Which group of stocks is right?

[twitter.com/DrBubb]

The dollar looks to me like it has been "building cause" for the next push up through USD-76.40. That upmove could start as early as today IMHO.

Wouldnt it be ironic if EWI missed the start of the next push down

[Roger D.]

Steve Hochenburg doesn't know chit. He changes counts like a nurse changes dirty diapers....baaaaaah.

[yelnick]

Grasp, good comment on the divergence in retail. I think WMT and AMZN win due to perceived or real discounts. Not sure about BBY; maybe their hara kiri price war on DVDs has drawn in traffic. (They are doing it vs AMZN and WMT!) 

There has been this interesting phenom of poole trading down - fine restaurants to family, family restaurants to cafes (no tips), and ultimately, to the Four Food Groups of the Apocalypse:

McDonalds
Hersheys
Campbells (soup!)
Hormel (Spam!)

I did notice that even McD's is having some issues. 

[Hank Wernicki]

This raises an " ethical question " : How can one service say go 200 % short

And another service says a triangle with new highs ahead ?

Personally I like Bob P, but they are pushing the enevelope here ... ?

Talking about having your cake and eating it too !

No matter what happens they are always right ?

Don't investors see this ... ?

Or am I viewing this wrong ?

Comments ?

[yelnick]

Hank, it seems about time for the EWT to pull off the short doesn't it? We shall see what he sends out next week. Please note that the EWT count of a triangle ending is not their only count; they also keep open a meltdown from here.

[Perigee]

Aussie market down this afternoon trade and often a reasonable precursor to US trade but Aussie up on better than expected employment numbers. Seems our Government can fudge the numbers with the best of them.

[Bird]

Maybe this isn't right. But what seems to me surprising is that the main elliott wave pundits do not have a strong basis, right or wrong, for saying WHEN a major turn is likely to occur. Alternative counts may be a necessity, but there still should be, I would say must be, an approach, such as ratio analysis, applying the fibonacci ratio to the time dimension, or some other cycle approach, that allows us to more clearly favor one count over the other.

[Virginia Jim]

"After Prechter called all subscribers to 100% levered short Hochberg goes 100% bullish with EITHER an expanding triangle or the end of a b with new highs forthcoming. Not that he doesn't have the right to be wrong, but he doesn't give a single bearish count or review SPX or NDX saying there are too many unclear alternatives to review. So, what he's telling you is the DJIA count is clear and you're guaranteed to have new highs. That's the Hochberg guarantee." - Virginia Jim

[yelnick]

Bird, I agree that they are not able to pick it right before, but to their credit EWI got the top in 2007 and the bottom in 2009 pretty close. What has intrigued me about the Zoran approach (which builds on Neely) is that there is no need to pick the top; the need is to recognize a trend change and pick the secondary top (wave 2) before the fast down move.

[vipul garg]

for a change stu count as shown looks reasonably good to the effect that upmove is to follow.