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Ready for the Santa Claus Rally

FYI, I won’t be posting a lot between now and the first of the year.  I’ll do the regular Twitter and portfolio allocation posts.  In addition, if I see anything important I’ll be sure to mention it.  Otherwise I’ll be enjoying friends and family. I hope you do the same.

It looks like the market is now set up for a Santa Claus rally.  Here’s an update of the things I’ve been watching recently as warning signs.  First is a chart of NYSE Cumulative Breadth (NYAD).  Although it is still diverging from price, it has turned back up and looks like it has dodged a warning.

The ratio between the S&P 500 index equal weighted (SPXEW) and the S&P 500 index (SPX) is still below its 20 week moving average, but has turned back up.  As I’ve noted before this indicator is often early so keep an eye on it.

The ratio between 1 month volatility (VIX) and 3 month volatility (VXV) is back below .9 (at the moment). When it closes below that level on a weekly basis after a period of higher volatility it usually signals the worst is behind us.  I like to use this indicator after larger consolidations or corrections to rebalance a hedge or deploy some cash.

Bottom line, all the early warnings seem to be clearing themselves and setting up a higher probability that the market will rally into the end of the year.

 
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