December Trading and the Santa Claus Rally

This market looks like it is trying to bottom out.

We are still having some violent sell-offs but there isn't much in the way of follow through. The bears look like they are beginning to get weak and bulls look like they are getting stronger. Unfornately, that could easily change with this "news driven" market atmosphere that we are in.

But, I think this could still be a great month for stocks. Given the fact that December is usually the best month for stocks and then there is the Santa Claus Rally.

From the Almanac Investor...

"Trading remains guarded through the first half of the month as tax-loss selling wraps up. Once mid month passes, stocks rise on the majority of days."

I've also been running some crossover scans and I'm finding some fantastic first pullback scenarios beginning to unfold. I'm noticing a lot of double bottoms, triple bottoms, rounding bottoms, etc.

This could turn out to be a very good month for stocks.

Tags: first pullbacks, santa claus rally

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Comment by Craig on December 6, 2008 at 4:06pm: Yes, I ignore it.

I haven't actually looked at the ADX indicator itself in a long time! I don't have it set up on my charts. I just use it as a condition in my normal scans to find strong trends.

:)

Comment by KTF on December 6, 2008 at 2:23pm: Craig, a quick question on the first pullback. I have noticed that after a SMA 10/EMA 30 cross the ADX is usually below 20. Of course this is due to the fact that the stock is reversing trend and is not yet in a clear trend. Do you ignore the ADX for first pullback trades?

Comment by Craig on December 6, 2008 at 11:44am: I think discipline is a constant battle for discretionary traders. Myself included. I got stopped out of DKS but I had a very tight stop on the hourly chart which resulted in a small loss. It's a good thing because that stock has taken off!

Then I got into EWC which had a nice short setup on the daily. Again, I had a tight stop on the the hourly chart. This time it paid off nicely and got out near the low of the day. Nice trade.

I haven't been trading a whole lot lately but I expect that to pick up this month if we get a nice rally. There should be a plethora of "first pullback" setups.

That is my favorite pattern to trade so I am starting to get excited for what may be in store!

Comment by KTF on December 6, 2008 at 11:22am: I think you are right. I see tons of signs of a temporary bottom. My Elliott Wave analysis suggests that Wave 3 (or C) has ended, or will shortly end. We may have one more drop, but after that we should see at least 4-6 weeks of uptrends (or at least sideways movement). Beyond that I have little idea.

Right now I'm cursing myself for taking a couple of short trades late in the week, but those setups were too tempting. I vowed after losing big on the last wave transition in June that I would not do this, but discipline its always a struggle ...

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