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Santa Clause Rally Persists, Investors Proceed With Caution

ByMichael Gouvalaris
Published 01/06/2014, 12:25 AM
Updated 07/09/2023, 06:31 AM
US500
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DJI
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GC
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IMAT
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Dow Jones
This week we saw a continuation of the "Santa Clause rally" during another holiday shortened week of trading. We have now reached our main upside target objective of this bull market as highlighted in the chart above and referenced numerous times over the last few years.

In my opinion, investors should be cautious going forward until this pattern is broken. The pattern being, that each bull market high since 1997 (16 years) has consistently been around 2400 points higher than the previous. And now we find the Dow as overextended as it has been, on a technical level, in 16 years.

This pattern could certainly be broken, but unless or until it actually is I believe it's prudent to take a conservative or defense position in the time being. For more info on why these levels are potentially strong resistance please refer to my previous post.
DJI
In the mean time, some short term support on the Dow comes in around 16,175 as annotated on the chart above. This would about match the size of the last short term correction and marks a previous swing high as well.
SPX
A similar setup on the S+P 500, with 1800 coming in as support along with the potential support at 1813.
S&P 500
Going to keep it short this week with the holidays and short week of trading. The chart above is a quick summary of performance for 2013 among the asset classes. Equities were the big winner with Bonds and Gold the biggest under performers. We'll see what happens in 2014.
S&P 500
The relative strength for 2013 came in the Cyclicals (Consumer Discretionary), Health Care, Industrial and Financial sectors as Utilities, Tech and Basic Materials under performed.

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