The big challenge this year as opposed to other years is how much will opposing forces interfere with the Santa rally. Aside from prevailing wisdom, the Santa rally is fueled by the good feeling created by the time of year, writes Jeff Greenblatt Wednesday.

So instead of the Santa rally manifesting right before Christmas, the seasonal factor starts right after Thanksgiving.

In most bullish years, there isn’t much selling from the last week of November through the New Year’s Day. But in bearish years, we still end up with bullish seasonality but it is interrupted by big selling weeks. Consequently, Thanksgiving was nearly three weeks ago but the market hasn’t made any real progress.

The selling last week was anticipated here. With last Thursday’s big reversal, it appeared the Santa bull could be back on track but it wasn’t to be. The bigger forces tied to the 80-year generational turning cycle appear to be winning.

What is fascinating is the quickening when it comes to the news cycle. From Friday through Tuesday there were at least five major events.

First the Chinese Huawei executive was arrested which gave financial markets a good degree of indigestion.

Then the events in France are starting to upset investors. FOX Business said the damage from the French riots is close to $6 billion. Tourism and holiday shopping are impacted.

If that wasn’t enough, there is turmoil with Brexit in the UK.

There was even turmoil on the home front as certain members of Congress are calling for the president to be indicted.

Finally, on Tuesday the public was treated to a display of divided government as the president battled Schumer and Pelosi on the border wall issue.

Why are we talking about this? Simply put, the market doesn’t like this kind of uncertainty. Each one of these events elicited a selling response that delayed the continuation of the Santa rally. I think everyone realizes these are the kinds of events we don’t see very often, if at all.

When we talk about the ongoing trade war with China, it exposes the truth that markets ride a slippery slope of hope. The rest of the events I mentioned manifest in bears in a different way. Surprises come to the downside in bear markets. The challenge here is so many surprises in such a short period of time. If we look at these events as contrary indicators, we may finally have the bad news headline low in place.

It is December 12 and the holiday is less than two weeks away. If the market is ever going to rally, this is the time for it.

If it doesn’t rally now, when exactly will it rally? Chances are good January is going to be a tough month. If we don’t rally now, this could be one of the worst Decembers in the history of the stock market. That’s the bad news.

The good news is we have several readings that suggest today was the start of better days, at least through the end of the year. The best-looking reading happens to be the Russell 2000 (RUT) which has been lagging badly. First of all, on a square of nine, it has a 722dg drop which is basically 2*360 (720), a classic old school Gann reading. I mention old school because the Gann community recognizes multiples of 360-degree circles but under my Kairos method the reading could square out with just about any number.

For instance, in this case the square root of the low at 1422.98 is 37.722 which matches the 722dg drop. That is not a coincidence.

chart

It looks good for now even as the rest of my calculations suggest a weak rally compared to prior bullish sequences we’ve seen since at least 2016.

What might manifest is a market that is not friendly to either bulls nor bears. The rally might be weak and subject to interruption because of more turbulence in society. On the other hand, the market is oversold enough that its late in the game to be short right now.

This year appears to be the exception of what to expect over the holiday period. If you don’t enjoy the choppy action, you might consider a strategy of being in and out of positions.

Pick your spots, place your stops and take what the defense gives you. It is not a time to be greedy or overstay your welcome. You can always get back in tomorrow or the day after.

Subscribe to Lucas Wave International newsletter here