If You're a Trader, Here's Where You Should Be in January
By Jeff Clark
December 30, 2008

The market should be rallying right now. But it's not. It didn't rally during this time last year either. So now, a lot of folks are wondering if there really is a Santa Claus.

There is. He's just delayed.

Back on November 25, I first told you I expected we'd see stocks bounce in the next few months. I repeated my argument for a "Santa Claus rally" (the seasonally bullish move that almost always happens this time of year) on December 9. Today, at the risk of sounding like a parrot on steroids, I'm telling you again a rally is on the way.

The monthly chart of the S&P 500 is just too far below its 20-month exponential moving average line (EMA) for the market to decline much more without some sort of a bounce first. Take a look...

My college statistics professor called it "reversion to the mean." It's the tendency of prices to move back toward the average.

Think of it like diving into a swimming pool while holding a basketball. As you swim deeper and deeper toward the bottom of the pool, it gets harder and harder to hold the ball underwater. Eventually, you have to let it go, and the ball shoots back up toward the surface.

That's the sort of action I expect we'll see in the stock market over the next month or two.

Stock prices are just too far underwater for them to fall much farther. And there's pressure building for a bounce.

Stocks Could Rally 40% in the Next Four Months Why Stocks Could Easily Rally 30% By January

Of course, the bounce will only be temporary. As I explained back in November, we are going to have to endure one more hard decline before this bear market comes to an end. But, for now, traders should be positioning themselves to take advantage of a rally.

Yes, there is a Santa Claus. This time, however, it looks like he won't show up until January.

Best regards and good trading,

Jeff Clark

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