Last year vs. this year

Yesterday turned out to be very nice day.  Just what a Santa Claus rally should be.  The indices moved up slowly all day, closing at or near their highs.  Even bonds rallied. 

This December has been quite similar to last year's as the S&P 500 would move up, chop down to sideways for a few days, then move up again.  Even the PMO indicator at the bottom is flattening like we saw last year.  The S&P closed very close to the year's high, just as we are seeing this year.  Of course the first trading days in January last year knocked the wind out of investors.


                            Chart provided courtesy of www.decisionpoint.com

Last year my outlook was similar.  My indicators were telling me it was time to get defensive, but because of the seasonality strength, I wanted to wait until after the first few days in January.  That was a big mistake as the market opened higher on the first trading day in January last year, but quickly reversed down and continued down for almost the entire month.  Let's take a look at the day prior to Christmas last year and the week that followed...
 

                           Chart provided courtesy of www.decisionpoint.com

The day before the Christmas break was relatively flat before the day was over.  On the day after Christmas weekend there was a relatively big sell off.  The following day reversed and the indices closed up quite nicely.  The next three days were basically flat.  So between the day prior to Christmas through the end of the year, the S&P gained about .15%.  Less than the bond fund gained yesterday, and three of the five days of the final week were actually down.

Things rarely repeat themselves exactly, but if we are going to see similar action this year, in retrospect, selling after a strong day would have paid off and limited exposure to a market that was badly needing a rest.  You can see the damage that was done the first week of January last year.  My indicators warned me but I got greedy and tried to catch the typical strength of early January.  Here we go again.

Bonds are still in an uptrend and the G fund is likely to pay the penny on Tuesday or Wednesday of next week so if you are looking to protect your 2005 gains, you may want to look for some strength in the coming days to lock them in.  I am pretty happy with what happened the past two days.  I plan to use the next strong morning next week, or even today, and be thankful for what I made and move back to a safe haven.

It's not if, but when the market will pull back in January.  It could even start next week.  High risk investing will get you the big gains when they come but it will also whack you down hard when you are wrong.  Your investing style and strategy will tell you what to do from here.

This is the last market commentary until after Christmas so I want to wish everyone a safe and Happy Holiday.  A special holiday greeting goes out to our troops who can't be home this weekend.  We will be thinking about you. 

Currently 100% S fund.  Merry Christmas!