Sunday, December 20, 2009

Twas Brillig and the Slithy Toves Did Gyre and Gimble in the Wabe is choosing to run with S&P 500 May Climb 6% on Santa Claus Rally: Technical Analysis, which says:

The Standard & Poor’s 500 Index may end the year as much as 6 percent higher if a typical December rally drives the gauge past a key resistance point, according to technical analysis by Bell Direct’s Julia Lee.

The index, which closed yesterday at 1,096.08, has climbed through December in 16 of the past 20 years, said Lee, an equities analyst in Sydney. Further gains this month in what’s sometimes known as a Santa Claus Rally could push the gauge past 1,121, the 50 percent retracement level that Fibonacci analysts identify as a point of significant resistance.

“The 1,121 level is the 50 percent retracement from the high of the bull market in 2007 to the low of the cycle in 2009,” said Lee. “It will be a challenge to break past that, but if it does, my guess is that the index will drift even higher to 1,160. If it doesn’t, we’ll probably just see a sideways movement.”

While I give some credence to technical analysis, it is irresponsible to the non-professional reader to suggest that with 2 weeks left in the year in what is usually quiet trading, and only about 7 trading days, that the index can rise 6%. Annualizing a 6% gain every 2 weeks gives an appreciation rate of about 329% yearly.

Yes, anything can happen, and yes, an improving economy associated with Fed ease is a potent combination for the bulls. But it is much better to see gloomy headlines that worry that stocks are poised for a fall than the uber-bullish gibberish quoted above. Rather than waste your time reading this stuff, please reread perhaps the most famous piece of nonsense ever written, namely Jabberwocky.

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