Indicator Says Santa May Stick Around Wall Street

With just two days left until Christmas, Santa managed to push stocks to their second consecutive gain Tuesday following Thursday and Friday’s drubbing. The broad-based advance was led by the oversold transportation sector.

Notable movers included Whole Foods Market, Inc. (WFM), which managed to break past multi-month horizontal resistance, up 5.5%, and Kinder Morgan Inc (KMI), which gained 1.2% after a long, nasty selling spree this year.

Before looking at the stock market, let me point out some technical developments on the chart of NYMEX crude. While oil prices continue to trend lower, they are showing more and more signs of seller exhaustion, at least for the near to medium term, i.e., a few weeks to a few months.

Oil Chart
Click to Enlarge

Note that the RSI momentum oscillator bottomed early this year and has been making a series of higher lows since then while prices continue to slide. Price is the ultimate arbiter since that’s the only way we get paid, but this ongoing divergence between price and momentum is notable.

In short, selling pressure continues to abate, which at the margin means the bulls now need less force to cause a real squeezer of a rally. As I said in Tuesday’s Daily Market Outlook, a run up in oil and energy-related stocks would likely lift the broader market in the near to medium term.

This week, I highlighted a confluence support zone in the S&P 500 around the 1,990 to 2,010 area. In today’s chart, I also added the McClellan Oscillator, a momentum indicator that gives off good oversold/overbought readings.

S&P 500 Chart
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Last week, this oscillator nearly reached oversold extremes seen in late August while prices were nowhere near their late-August lows. This pessimism was also supported by a high put/call ratio, all of which essentially spoke to oversold levels that we could rally from. And with the McClellan Oscillator not yet overbought, there may be more upside ahead.

Lastly, from a Fibonacci extension perspective, the 2,170 area, which I have been pointing out to clients and subscribers for a couple of months now, remains a good upside target through a multi-week/month lens.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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As of this writing, Serge did not hold a position in any of the aforementioned securities.

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