12-25-17 Comments

Seeing weakness at the end of the year is a bit unusual. The following table shows what has happened since 1997 with the Santa Claus rally and then what followed in January. It is too soon to say what will happen by the end of the coming week. If we see continued weakness, I might get interested in the short side again.

[ATTACH=CONFIG]43190[/ATTACH]

In the table, weak end of year performance usually leads to weak January returns. There also may be an effect due to the new tax laws. Investors may wait until next year to sell, in order for profits to be taxed at a lower 2018 rate. This could make for a volatile January.

Pascal mentioned that 2018 could be the year of the effects due to unwinding the Fed balance sheet. I found this chart showing the Fed's plan and the past balance sheet correlation to the S&P. The unwind will be slow but the reaction could be quick. If the market erupts to the downside, the Fed may decide to postpone the unwind or double down with new QE.

[ATTACH=CONFIG]43191[/ATTACH]

The last chart shows that the AAII cash index looks like it did in 1999 before a bear market got started. Market rallies happen when there is a lot of cash on the sidelines. We appear to have the opposite problem.

[ATTACH=CONFIG]43192[/ATTACH]

61% of small businesses have expressed difficulty finding skilled workers. I wonder if this will lead to inflation. So I am watching gold. If Bitcoin is topping, Bitcoin profits could find there way into an alternative investment such as gold. I unsure of what is the current primary trend in gold. We had a large uptrend from 2000-2011 and a subsequent pullback. It this pullback a counter-trend correction with the presumption of a continuation of the upward primary trend? Or, is the pullback beginning in 2011 the new downward primary trend with the slight rise since 2016 a counter-trend rally? It may take a year or more for this picture to sort out.