Where to, Santa?

It was another confusing week: Investors drove down the market for practically the same reasons they had driven it up.

With this confusing situation, you look forward to seasonal events to occur soon like the Santa Claus Rally to bring about normalcy and regularity. But the Santa Claus Rally might not be happening anymore. On second thought, has it already happened?

Strictly speaking, the “Santa Claus Rally,” as understood in the United States, is said to be the surge of stock prices in the week between Christmas and New Year’s Day.

Somehow, the local market mimics this event.  Our local market—like other markets all over the world—is normally moved by the sentiments and trends happening on Wall Street, the world’s leading and biggest equity market.

Several explanations have been put forward why such an event happens.  This includes the original explanation that it is an offshoot of some tax considerations arising from the investment activities of particular people in the US along with the general end-of-the-year window dressing activities made by money managers to beef up the value of their investment portfolio.

One entertaining explanation about the event—which, incidentally, is my favorite, being an eternal optimistic—is that a lot of the market’s pessimists are on vacation at this time.

Seriously, the more plausible explanation why this event happens is that people are awash in cash with Christmas bonuses received.  Many of the cash find their way in the stock market.

The “Santa Claus Rally” is closely followed by another market phenomenon that happens in January the following year.  This is called the “January effect.”

As described, the “January effect” is the uptick of stock prices during the said month,  “as a result of people buying stocks in anticipation of the rise in stock prices” for the period.

To my mind, however, the “January effect” is nothing but the spillover of the “Santa Claus Rally,” additionally fanned by reconfiguration activities of investment portfolios along with concomitant window-dressing activities by money managers.

Performance review

As reported, the market fell on the first week of December.  As a result, it made a disturbing weekly loss of 193.88 points or 3.12 percent.

As it happened, the market made its only gain on the first day of the week Monday.  The gain was a feeble 14.55 points or 0.23 percent as trading closed at the session’s high of 6,223.37.  Thereafter, the market went into a downward spiral all the way till the end of the week.

As observed, too, the market tried to advance further following Monday’s trading gain.  This was evidenced by the market’s record of opening at session’s high for the day from Tuesday to Thursday.

The effort, however, always ended in losses.  Investors shifted to selling mode toward the end of the trading day as Wall Street also swung from fear to no-fear and back on taper speculation or on developing economic data.

Thus, the market fell 43.87 points or 0.70 percent on Tuesday, 74.27 points or 1.20 percent on Wednesday and 74.28 points or 1.22 percent on Thursday.

Friday’s trading was not at all any different except for the fact that the market opened slightly lower at 6,031.30 or 2.26 points down from the session’s high for the day of 6,033.56.

As if the market’s weekly loss in the first week of December was not bad enough, the market again fell last week with a terrifying weekly loss of 247.81 points or 4.12 percent.

This happened as the market fell in three out of five trading days of the week, following a similar pattern of opening at session’s high or almost at session’s high for the day.

Quite different, though, the market last week almost always ended above the day’s low, a clear indication of last-minute buying activities by investors.

This was markedly different from the other week when trading always ended at the day’s low, which could only mean that investors were trying to empty their hands of stock positions before the end the trading day, either for profit or for other reasons.

Bottom line spin

The period between Christmas and New Year’s Day is just a week away.  This makes the “Santa Claus Rally” just a corner away from happening, so to speak.  Yet, even this close at this time, I still don’t seem to have any idea of how it will unfold.

But if we go by how the market has been obviously behaving in the last two weeks, it’s on an agitating downtrend.  The only consolation is that the market ended higher from its low last Friday.

It may not mean anything since it ended only 57.79 points higher from the trading session’s low.  But following a proven market principle, any point of the market can always become a turning point.

Following this principle and also ignoring the sloping pattern of the market’s peaks, the market is developing three bottoms in its chart.

The first bottom could be its lowest in June and its second bottom could be its lowest in August.  Its third bottom is soon to happen.  A wild guess is, this could result in either a breakdown or a recovery.

If you are surprised at how I’m talking now, it’s because I’m acting more like a trader than an analyst this time.

An analyst is recognized and paid by how he accurately predicts the market but not necessarily on being able to turn around a wrong trade like a trader does after making a wrong guess about the market.

Being a licensed stockbroker, I’ve always preferred to be a trader than an analyst.  So, it’s up to you to give the foregoing comments some credence or not.  But as is said, too, “truth is sometimes more stranger than fiction.”

(The writer is a licensed stockbroker of Eagle Equities Inc.  You may reach the Market Rider at [email protected] , [email protected] or at www.kapitaltek.com)