Monday, December 26, 2011

So, What Is A Santa Rally?

We have been talking about a Santa Rally and many readers may be wondering what that really means. Simply put, it is a seasonally proven rally when the stock market forges ahead in the last five (5) trading days of the year and the first two (2) trading days of the New Year. This seven days rally propels the market in a higher orbit and is a general indication of the health of the stock market. May be you can read the following;

I have been shouting the whole year that irrespective of what Robert Prechter and Zerohedge is saying, we are going to see a doomsday scenario anytime soon in 2011. There may be volatility but that is just a trading opportunity.  90% of the trading is done by the 50 largest investment bankers of the world. These bankers, also called Too Big To Fail (TBTF) bankers, have no other source of making profit, apart from the speculative profit. Their traditional source of income is almost gone. They are saddled with huge bad assets in their books. The only way they can survive is by making money through other revenue. So they generate these huge up and down waves. They buy at the bottom, create a rally, sell high and then start the cycle all over again. I have a feeling, Zerohedge is just an instrument in the hands of the TBTF bankers to create that fear and panic where the retail always sell short and are unable to take advantage of the rally. I may be wrong. May be those good folks are being manipulated to act like a bonehead. But either way, they are not very smart traders, contrary to what they would like us to believe.

Take this current rally for e.g. I have seen people selling, getting short from 1255 level in SPX. Just because SPX rallied from 1202, does not mean that we have sell now. The following is an actual conversation from one board. I have deleted the names for confidentiality;

“I am trading rydex only funds. I went 30% short on friday close. expecting a pullback as per your earlier report. Now you are expecting 1310/1290 so I am thinking of going long 70 % / short 30% next tuesday. If there is any pullback I close short and go long 100% as we are expecting higher high.

Question - 1. Below which price you think we should close out longs.

I would like to see how you are thinking/planning your trades as per your technical edge.  I do understand this are all probbality and nothing is gauranteed. Its more to see inside masters brain. I dont day trade so have to plan ahead of time.

thanks “

Pity this guy because he did not use his own brain and went short when he should not have.

 Every indicator tells us that more upside ahead. Seasonality is solidly backing us. No bond issue in Europe till the 2nd week of January. Volumes are light. Why would you short now? We would rather short the market at the end of the 1st week of January, when seasonality tells us that the market will correct itself.  But folks have been brainwashed to believe in the end of the world story. The irony is, bear market comes at the height of euphoria.  It never comes with announcements.

In various boards I see newbie traders, eager to make a quick buck, all excited about the coming fall of the stock market. The statistics tell us that 4 out of 5 retail traders will underperform the market. One of the major reasons of underperformance is to come to the trading arena with a bias or pre-defined mindset and expect the market to confirm to that bias. It never happens.  Market does opposite of what you would expect.
We still have this last trading week and the next to wrap up this rally and we will take it up from there. Just remember, the days of buy and hold investment type is gone forever.  As a retail investor, trader, we can still make decent money playing the game even if it is rigged. Occasionally we will lose, but if the winning percentages are higher than losing, then we should be feeling good.

I have started this blog as a part of my doing good karma. I do not ask for donations, I do not want you to click on ad to generate adsense revenue. In fact, I use Adblock and suggest everyone to use it.  I only want more and more people to be successful trader and donate a percentage of their profit to any charity of their choice. I will continue with this blog, only if I see continuing and growing interest from readers. If you think you are benefiting from my analysis and calls, I urge you to forward this blog ( ) to all your friends and family, tell them why you like it and bring in more and more readers.  Without growing and sufficient interest, it is just a waste of my time. So dear readers, please do your good karma and encourage others to join my Twitter (@BBFinanceblog). That will keep me motivated.
See you tomorrow.