Equity Tuesday : ‘Twas The Eve Of The Eve of Xmas And We’re Already High

The astounding rebounds we have seen in the past week has been nothing but breathtaking and all the bulls are out in force in the streets with proclamations like the one below.

stocks had their best two-day run in over three years on Thurs, gaining 4.49% on the S&P 500. It was just the 86th time in the S&P 500’s history that it had back-to-back 2%+ up days.

History shows the next few months following this kind of move are typically very very bullish. As the Sentiment Trader notes, excl Thursday, there have only been 12 such occurrences of such intense buying pressure in back to back sessions in the past 52 years.

The S&P’s gains over the next 3-12 months were massive, two to three times an average return during the past 50 years. In each time frame, only one of the occurrences showed any kind of meaningfully poor performance. The most that the S&P lost at its worst point during the next few months averaged only -1.9%, while its maximum gain at its best point averaged +8.9%, a more than 4-to-1 reward-to-risk ratiotaken from Otterwood Capital Management

Take a look at the gaps in the STI daily chart.

STI GAPS

What is interesting to note is that in the past month, 41 stocks made up the 92 occurrences of new 1Y highs in price compared to the 218 stocks that made up the 625 occurrences of new 1Y lows.

This is not a broad based recovery if you ask me because we cannot have DBS, SIA and gang repeating the same feat each day just because interest rates are higher and oil prices are lower.

It contrasts with the S&P 500 where we see over a thousand new highs compared to 272 new lows in a month.

I find the biggest rewards come from frequently changing views, timed with sentiment highs and pull backs and the Xmas break is a good time for some soul searching.

Geopolitical and economic risks are ever so prevalent that it does not really matter if oil rebounds back up to 75 bucks because the damage wrought will take months and years to unwind.

The VIX index is really a nice looking option right now, sitting on multi year support levels.

vix 5 year chart

And I hasten to remind folks that the Hindenburg omens we saw last on 10 Dec has another 32 days to run till 24 Jan 2015 (although I was bullish last week after calling the STI double top). https://tradehaven.net/market/equity-monday-fomc-the-5-diamond-edition/

The rally has been unreal, unbelievable and unsustainable ? And because 3M Libor is also at a 1 year high, I urge folks to get high,  by all means, on this Xmas week, but do avoid seeing double after too many drinks, double tops included.

STI Weekly Chart

STI Weekly Chart