Date: December 29, 2015

Santa Claus is in the House!

The last week of 2015. I hope you have been enjoying the holidays.

The major stock market indices continue to behave as I spelled out over the past few weeks. Santa Claus came right on schedule and the seasonal trend has him taking a break to close the year with some mild strength to begin 2016. While I was very pleased that stocks reversed early last week and have followed through on the gains, we still need to see all of the indices close above their Fed day highs from two weeks ago. The S&P 400 and Russell 2000 seem poised to accomplish this right here, but the Dow, S&P 500 and NASDAQ 100 have a little more work to do.

Intermediate-term, last week’s upside reversal could have significant bullish consequences, but given the lower volume and diminished liquidity, I would like to see more confirmation. New highs/news lows, stocks advancing and declining and up and down volume all went from fairly negative to strongly positive over the span of a single week. Historically, that leads to double digit upside over the coming months.

On the sector front, it’s going to be vital for high quality leadership to emerge sooner than later. Defensive sectors like consumer staples have been leading, but the semis and consumer discretionary are trying to step up.

Lots of crosscurrents and trends this time of year, but most are bullish and high probability.

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Paul Schatz, President, Heritage Capital