Seasonal Trends Can Only Last So Long

We are seeing the market indices defying the notions of a tired market that lacks strong breadth and yearly breakouts.  Now, that's not an immediate sign of danger but it is certainly something to consider if you are long this market.  Volatility remains subdued and that is helping the bullish argument, but for how much longer?  Uncertainties are still out there as investors/traders ponder when the Fed will shift gears to a more hawkish policy.

 

They have been rather transparent on the wires and in speeches, but so far no action as of yet.  Fed funds futures project at least two rate hikes in 2022, and that is being generous.  With the onset of higher inflation one has to wonder if two rate hikes, lifting the funds rate from zero to .50 is going to combat higher prices.  Unlikely in my view, but then we don't know if this inflation is transitory or not (that may be the ideal excuse used by Chair Powell to delay rate hikes longer).

 

But seasonal trends are masking some ugliness underneath the hood of the markets.  Poor breadth remains a problem, especially since we recently saw the cumulative breadth hit an all time high recently.  When the indices hit an all time high simultaneously that augers well for more upside, but breadth has been leaking since the start of November.  

 

Volatility is starting to rise a bit and would become troublesome above 22 (for a time).  Oscillators are quickly approaching oversold, which is interesting they are not reflecting the strength in market indices.  A divergent market indicator. 

 

The bulls often come out to play aggressively this time of year.  The statistics show that from now until the end of the year the bias is up. But if there are some 'no bid' days and higher volatility during the last few sessions of 2021 there could be some bearish action into the new year that will have many of the bulls on their heels.