Seasonality Gains the Upper Hand

For the equity bulls, yesterday’s sharp move higher was something to celebrate as it moved the S&P 500 out of its recent trading range and opened the technical door for a possible challenge of the early November highs.  Coupled with respectable volume readings, bears, like me, are in the midst of a serious reevaluation of our bearish thesis.  And with the release of positive retail sales data from many of the big-box chain stores this morning showing positive growth during the early portion of the Christmas shopping season, it seems as though negative data is becoming harder to find.  To be fair, the initial retail sales indications are often more jubilant in their conclusions than what is actually seen during the entire season, so these numbers need to be taken with a grain of salt.  Finally, adding even more insult to bears’ injury, the National Association of Realtors pending home sales index for October rose a whopping 8.4 points to 89.3 versus the market’s expectation of around 80.5.

Clearly momentum is moving to the bull side of the ledger at breakneck speed.  And while not too surprising given the bullish bias normally seen during this time of year, I am surprised that the European liquidity concerns are evaporating a fast as they are, especially given ECB’s continued hawkish stance on additional monetary interventions.  But right or wrong, the equity market seems intent on moving higher for the remainder of 2010, much to my chagrin.  Technically speaking, though, there should be a fair amount of resistance if/when the S&P 500 tests the 1,235 range, so look for the run higher to lose steam at this point.  Whether or not subsequent data will support a continued move higher at that point is certainly something I’ll be keeping an eye on.  In the meantime I’ll continue to work to get my arms around this market since things are shaping up to be a little more rosy than I expected.  Perhaps this will mark my shift from the bear to the bull camp?  If it is, I’d be hard pressed to act on the change ahead of year end given the limited number of trading days that remain.

Until later…..