HAPPY NEW YEAR
Do we have a stock drop coming to welcome in the New Year? I think we do for several reasons. First, bonds have weakened considerably in the last 30 days. Second, there has been a seasonal tendency for a decline in January the last 5 years or so. Third, the VIX continues to be at a very low level.
The blue line on the chart represents Bonds, and you can see the downward move that has taken place. I have drawn in the wedge formation in red, which does not mean much. All this shows us is that recently, prices have been contained in a narrowing range. There is no magic to these lines at all contrary to what many people have written about them. However, they do graphically depict the support area short term in prices.
Now that the year end bonus game for fund managers is over, there is no reason to just blindly support any dip with buy programs in the futures.
As a result, if we do get a break down, it will not likely get the immediate snap back that we saw during the 4th quarter. Sorry for the poor formatting in terms of paragraph breaks and spacing, the new version of blogger is not letting me edit this post for some reason.