Santa Claus Rally Skids Toward Fiscal Cliff
Speaker Boehner responded with his "Plan B" plan with a willingness to raise tax rates on Americans making more than a million bucks. Investors and traders assumed that when "Plan B" passed a House vote that a compromise income threshold could be negotiated by the end of the year preventing the fiscal cliff. Last night Speaker Boehner canceled a House vote on "Plan B" as the deal did not have enough yea votes to pass.
Stock market futures took it on the chin in overnight trading, and thus the Santa Claus rally may end in anticipation that there will be no compromise. For this to occur, the major equity averages will have to decline significantly today to end the week below their five-week modified moving averages at 13,084 Dow Industrials , 1411.3 S&P 500 and 2982 on the Nasdaq.
Over the first four days of this week crude oil and stocks were on the rise as gold slumped, U.S. Treasury yields rose, and the euro gained ground versus the U.S. dollar. In the wake of this volatility several important 200-day simple moving averages came into play, which usually confirm trend continuations. The Santa Claus rally appeared to have regained momentum, but now the fiscal cliff looms large, and today's closes will matter.
Analysis of the Yield on the 10-Year Treasury Note : (1.794%) The purpose of QE4 is to keep longer-term U.S. Treasury yields low. Instead, the yield on the 10-year note rose above its 200-day SMA at 1.734%, but my semiannual value level at 1.853% held as expected. The weekly chart profile favors higher yields on a close today above its five-week MMA at 1.668%.
Analysis of Comex Gold ($1649.3): Gold fell below its 200-day SMA at $1662.7 on Thursday to a test of my semiannual pivot at $1643.3. On Monday, I wrote, Prospecting for Gold Stocks saying that the precious metal had been moving sideways to down since Oct. 5 staying above its 200-day, and thus the break below it is a significant technical warning. The weekly chart profile for gold has been negative for the entire month of December. My annual value level lags at $1575.8 per ounce.
Analysis of Nymex Crude Oil ($89.88): Crude oil closed above its 50-day SMA at $87.49 on Tuesday, which I cited as a positive when I wrote Drilling for Energy Stocks to Buy. Holding the 50-day SMA indicates potential upside to the 200-day SMA at $92.37. The weekly chart will end this week with a positive profile with a close today above its five-week MMA at $87.86. Weakness over the past six weeks has stayed above the 200-week SMA at $84.28.