My Santa Wish List……Is still a Wish
My Santa Wish List……Is still a wish
On December 21st, I shared my Christmas wish list for participating in the Santa Rally. Unfortunately, my wishes didn’t come true but that same wish list still serves as my framework today as I evaluate the market from a tactical perspective (a fancy way of saying “short-term”).
My focus is on making money, and years of experience have taught me that repetition is often underrated. Once you have built a strong foundational knowledge (for me, that took 10 years, 50+ books, and earning my CPA and CMT), while continuous education is important we can lose sight of what really works. We don’t need to constantly learn new things; we need to be reminded of what works and execute it consistently.
Kobe Bryant didn’t spend time figuring out new ways to shoot a basketball. He showed up daily, got his reps in, and mastered the fundamentals. That process might seem boring, but in this game, despite what social media portrays, you should fall in love with the boring, systematic approaches.
Now, let’s revisit the wish list because it’s still what I need to see before stepping back into the market.
1. Friends Joining The Party
December 21st Thesis – Healthy Bull Markets invite their friends to the party, we want to see broad participation in the uptrend. Yes, the market can rise even when the “friends” aren’t at the party, but that’s the exception, not the rule. And betting on exceptions may work occasionally, but over time, it’s a losing strategy. I’d rather place my money where the odds align with the rules, not the exceptions.
Using a simple percentage of stocks above a 20-day moving average, you can see the damage that’s been done to the “Market of Stocks.” For me to participate in this POTENTIAL Santa Claus Rally, I would like to see this metric get back above 30%.
Yes, I may be a little late to the rally, but I’d enjoy the party a lot more with some friends.
January 11th Update – We’ve seen some improvement in breadth, but let’s be honest, it didn’t have much room to go anywhere but up. What we need now is for breadth to make a higher low and sustain above 30%. So far, that hasn’t happened, and I’m perfectly fine sitting in cash until it does.
December 21st Chart
January 11th Chart
2. Getting Above Tactical Levels
December 21st Thesis – The Santa Claus Rally lasts only 7 days, making it a very tactical event—”tactical” simply being a fancy word for short term. The beauty of technical analysis lies in its fractal nature, allowing us to align charts for a shorter-term view of this rally.
Here’s how I’m approaching it with the S&P 500: I’m using 65-minute candles, which the market produces 6 of in a day, and overlaying a 30-period exponential moving average (EMA). This essentially equates to a 5-day EMA.
Getting long tactically below a declining 5-day EMA is not something I like to do. First principles thinking applies here: price has to stop going down before it can go up. I prefer to buy strength after a pullback, not during it. That’s why I want to see the S&P 500 sustain a couple of closes above this 30-period EMA before joining the party.
January 11th Update – This part of the wish list did come true, just in time for the rally. However, as I mentioned above, breadth wasn’t supportive, and I was willing to sit out the party if I didn’t have any “friends” there. Fortunately, that turned out to be the right move, as the market continues to chop around.
December 21st Chart
January 11th Chart
Now We Wait
I’ll admit, I’m not good at this whole keeping the readers entertained thing.
My process is straightforward, often boring, and involves periods of waiting. But my goal is simple: to share what I actually do to succeed at investing because I believe it can help others.
Goal 1: Get good at investing.
Goal 2: Share with others how I do it.
Until my wish list is complete, I’d rather be out of the market wishing I was in than in the market wishing I was out.
Cheers,
Larry Thompson CMT, CPA
