‘Twas 5 Days Before Christmas

‘Twas 5 days before Christmas, when all through the house, No investor was long, not even their spouse.
The stocks were all shorted by the big old bad bear,
In hopes that St Nicholas would soon not be there.

The traders were certain the ‘Claus rally was dead,
With visions of profits as stocks turned all red.
And Obama was sweating, as the S&P seemed capped,
The first post-war Prez to see his third year stocks zapped.

When out of Europa there arose such a clatter,
Spanish T-bills sprang forth to make the shorts scatter.
Away through the 50-day it flew like a flash,
Tore open the shorts and took all their cash.

The S&P500’s close well above its 50-day SMA now sets us up for some history.   Will President Obama be the first post-war President to experience a negative return on the S&P500 in the third year of his term?  That is,  the S&P500 has had a positive return every third year of every term, both, first and second, since President Eisenhower in 1955.

Our answer?   After today?  Probably not, meaning it’s our guess today’s momentum continues and the S&P500 finishes the year positive.  That’s our well hedged best guess, at best.

Remember 1991, the third year of President Bush #41,  which saw a nutcracking 10.5 percent ramp in the last 14 trading days.   When the big money is away, the bulls can play.

The S&P500 has traced a fairly well formed inverse head and shoulders pattern (see chart) with the neckline (breakout level) coinciding with the 200-day moving average, which has proven formidable resistance.   Thus, if the S&P500 does manage to make it into the green for the year, above 1257,  it probably won’t do it by just limping there.

Still lots of headline risk out of Europe and Asia.  Should be an exciting end to an extremely difficult year.

(click here if charts are not observable)