The Santa Claus Rally somehow failed to arrive in the last week of 2016. Instead of rising slightly—like they do more often than not during this holiday season—the S&P500 slipped 1.1%. Volume of course was light, again due to the holiday period. And volatility jumped, more that the slight drop in prices would have predicted. The VIX index rose from roughly 11 almost 15, or about 30%…..not an insignificant increase.
Things were quiet in US macro news. The Case Shiller home price index showed another very modest rise in prices. What’s more notable is that now—fully five years after the US housing market bottomed in late 2011 and early 2012, the US housing market has fully regained all those losses and returned to all-time high prices across most major metropolitan markets. Consumer confidence beat expectations, most likely on the back of near record high prices in the US stock markets. Pending home prices however, missed expectations, most likely due to the two-month run up in mortgage rates. International trade also disappointed. Initial jobless claims increased more than estimated and finally, the Chicago PMI missed, quite substantially.
An interesting divergence has now developed in the US equity charts. While the weekly resolution still shows that an uptrend in prices is still fully in effect, the daily charts show a completely different story. They point to a recent breakdown in momentum, and with last week’s losses in the books, they suggest that the uptrend in prices has begun to break down. So this upcoming week will be enough to resolve this divergence. It should only take about five days to determine if the longer-term weekly charts will be correct (and the uptrend will resume) or if the shorter-term daily charts will be correct and continue to push US stocks lower.