SANTA CLAUS RALLY MAY BE STARTING -- PFIZER BOUNCE HELPS THE DRUGS AND THE DOW -- INTEL REBOUND SHOULD HELP THE SOX
LAST FIVE DAYS OF THE YEAR... The traditional Santa Claus rally may be starting. According to the Stock Traders Almanac, the Santa Claus rally is a "short, sweet, respectable rally within the last five (trading) days of the year and the first two in January". The Almanac points out that since 1969 the Santa Claus rally has produced an average S&P 500 gain of 1.7%. Since traders tend to anticipate the well-known yearend bounce, it probably accounts for some of this week's buying. If all goes according to the seasonal pattern, that should carry the market rally into January. As I've written many times over the past few months, I expect the current rally to last into January which is part of the three-month bulge that usually starts in November. As I've also written, however, I'm a lot more cautious about what happens after that. That's because I believe the market to be in the fifth (and final) upwave in the cyclical bull market that started in October 2002. One of the factors contributing to today's early bounce is a rebound in Pfizer and the drug sector. An upgrade is Intel is also helping.
INTEL BOUNCES OFF 50-DAY AVERAGE ... Intel is considered to be a bellwether for the semiconductor group. It's large size also carries influence in the technology sector. That's why this week's action in Intel is encouraging. The stock has been trading below its 200-day moving average (red line) and its 50-day average (blue line) for the last month. Chart 1 shows Intel bouncing twice off its 50-day average over the last week. [A brokerage upgrade is contributing to today's buying]. The ability of Intel to stay over that rising support line is important for the Semiconductor (SOX) Index which is also testing its 50-day line. And, the direction of the SOX is important to the Nasdaq market.
Chart 1
PFIZER IS REBOUNDING ... Since the news on Celebrex was released last Friday morning, Pfizer has been a huge drag on the Dow and the drug sector in particular. The stock is rebounding this morning (and is the Dow's biggest percentage gainer). The chart certainly doesn't look bullish. But it does suggest that the recent price drop has been overdone. There appears to be an interesting discrepancy between the volume pattern on the daily chart and the 15-minute bar chart just below it. The daily chart shows heavy volume during Friday's selloff (although the stock closed near its high for the day). The 15-minute bars show, however, that the heaviest volume came after the price plunge (see circle) when the stock started to bounce. The volume bars to the far right also show a slight pickup in volume on today's early rebound (see arrow). The intra-day volume pattern looks a lot more friendly to Pfizer than the volume pattern on the daily chart, and also suggests that there was fairly heavy accumulation on Friday's price plunge.
Chart 2
Chart 3
HEALTHCARE ETFS ARE UP ... Thanks to Pfizer, the two main healthcare ETFs that I track are trading higher today. The daily bars in Chart 4 show the Pharm Holders (PPH) bouncing off their 50-day moving average. The Healthcare Select Sector SPDR (Chart 5) is trying to climb back over its 200-day moving average. I suggested on Friday that I thought the drop in both healthcare ETFs were overdone. If that's the case, they should start acting better from here. That should help stabilize the blue chip part of the market where the big pharma stocks reside.
Chart 4
Chart 5
