Setting Up for That Santa Rally
While the utilities flash a warning signal, the market flashes a warning signal that could pave the way for Santa Claus to visit Wall Street.
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A line has been crossed. I think it could turn out to be important, which is why I am highlighting it. I also realize that many will yawn because we’re talking about the Utes.
Sure I know there was a time the Utes were hotter than hot. But that was last summer. Folks spun the narrative that AI needed all this electricity and I noted at the time that it wasn’t that long ago that the Utes were hot (in 2021) because Bitcoin was going to need all that electricity.
But now we have the AI trade cooling off (at least NVDA has cooled off) and until recently the Bitcoin trade was hot. Yet somehow, someway, the Utes are the same price they were in August.
I liked them for a trade in early November. It was a nice run, and then they stopped right at resistance and have since fallen nearly eight percent. That is not a small amount. They are oversold right now (short term), but notice that for the first time since the spring, they have broken that uptrend line. I don’t like to dismiss that sort of break, especially when no one is even looking.
I have also noticed another pattern on the chart: a broadening top. I don’t want your eyes to glaze over but let me explain. The pattern is basically a series of higher highs and lower lows. We typically number them because we consider (we meaning the textbooks) three touches at the top and the bottom to complete the pattern.
Right now we have not yet tagged number 6. If we do then the next move ought to be a rally back to the black line (making that point 7) before resuming the downtrend.
The Utes are a bit oversold down here –they have been red for ten of the last twelve trading days which is a lot—and they bounced off support and a round number on Tuesday (1000).
If the Utes can’t rally in the next day or two and they come down to tag that blue point 6, that would be a big negative not just for the Utes but for the market as a whole. It is my opinion that the Utes are often leaders, although their timing is not immediate.
Away from that, the statistics don’t say sentiment has shifted but, boy, the anecdotal chatter has changed. Folks who were bullish as can be a week ago, folks who saw no reason for the rally to stop before year end –and maybe well into 2025—all of a sudden are nervous about there being too much bullishness. There was too much bullishness a week ago so we know it’s not that. We know it’s the leakage over the last 2-3 weeks. We know it’s that the high fliers are no longer flying upward daily. That’s what has them nervous.
I would remind you that my view has been we’d get overbought late last week (done) and have a pullback/volatility this week and then we ought to set up for a Christmas rally. Then my guess is the first quarter sees a peak in the majority of stocks, or maybe some have done so already (see the discussion about insider selling from Monday).
So, in the short-term, having had breadth negative for six of the last seven trading days means we should get short term oversold for that Santa rally.
