What We're Reading

santa claus rally (3)

Admin

Breakouts vs. Breakdowns

According to BTIG Research, there remains cause to be concerned after the stock market's bounce last week.

For the first time since the October low, breakdowns have outnumbered breakouts. This is a byproduct of the 5% pullback in the SPX over the past two weeks, which naturally saw some stocks break support levels. We are inclined to worry about breakdowns when they are abundant (at least 10% of the SPX, more than this time around) and recurrent (outnumbering breakouts for at least 2-3 weeks).

This last occurred in October, when the market suffered deterioration in breadth that was significant enough to suggest a structural shift may be underway. For this reason, we would be inclined to use strength to sell stocks that…

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Admin

According to Ashraf Laidi:  The following sobering analysis on the S&P500 reinforces our expectations that recent record highs in US equity indices will not be revisited before at least six weeks.

A decline of at least 10% is expected to follow.

-        Last week’s 3.6% decline in the S&P500 single-handedly erased all of the prior seven weeks’ consecutive gains.

The last time the S&P500 erased at least three weeks’ of consecutive gains was the week after the October 2007…

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Admin

Bullish on Small Caps

In early October, I pointed out that the Russell 2000 (IWM or $RUT) could be forming a bullish butterfly pattern, having found buyers off of the 20month SMA.  (See here

Well so far so good and I'm calling it's recent consolidation a bull "flag" due to no significant breakdown in the other three indexes, nor semiconductors.

Friday we saw banks and broker/dealers make a nice reversal higher after comments were made, that while the ECB is not easing "now", they will be preparing a QE plan for their January meeting.  The U.S. 10 year popped and the banks/brokers followed in suit.

Small caps also typically outperform large caps going into the end of the year.  While the stronger…

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