Santa Claus Rally?

Are we in for a year end rally?

I think so.

Looking at past crashes(I think this officially qualifies as a crash) tells us some very interesting things.

First is that the big ones, have all started about the same time of year. This one falls into that category.

The second is that, within the context of crashes, about this time of the year the markets rally. If you look at charts for broad sectors you will see basing patterns are occurring. This indicates a good possibility for a rally.

Let me sidetrack a little here because I know I haven't done much in the way of discussing charts.

Charts are not the be all, end all of investment techniques. But the interesting thing about charts is that, it is a very technical way to gauge investor psychology. Just that concept alone is enough to make Sigmund Freud shriek from his grave. That aside, human behavior is fairly predictable. Particularly large groups of people. And the larger the group, the more predictable. The investment community is a pretty big community.

What charts do is to illustrate patterns. They point out what the majority is doing and by comparing past patterns they give you an indication of what could happen in the future. But here is the catch. Humans aren't technical creatures.

While we are fairly predictable, we don't always repeat the same behavior. That ability to adapt, invent, innovate and improvise is what makes us so strong. It not only allows us to survive, but it makes us thrive and succeed and it is also what points out the inherent flaw in charting techniques.

The difficulty in charting is in applying the right historical behavior, to the current climate. Therefore the question is; Is this the same environment that existed in the early 1930's?

The fact that so many people are comparing today's markets to those of the Great Depression, makes me instinctively nervous. Group Think is invariably inaccurate.

Group Think makes you reevaluate what you instinctively know and believe and then question it.

Taking all this into account, what my research and instincts are telling me is that, we are in for an INTERIM rally. And the charts confirm it.

And that is what charts should be used for. Do your research, develop reasons, check your fundamentals and then confirm it with the charts.

We are still in a falling market and we have a lot of work to do before we get out of it. But every crash has some up days and I suspect that we are close to those days.

So, if you've been paying attention, you probably already know what I'm going to say.

IF we do get a rally, I'm going to ride it up and then sell, sell, sell. Everything except my core holdings of Silver, Gold, mining companies and blue chips. It is entirely possible that commodities will decouple from the broad market and continue up or stabilize on their own. Watch for this.

In closing I will say that human behavior is unpredictable and history doesn't always repeat itself precisely. The only thing we can do is prepare to the best of our abilities and execute what we know. The outcome is only uncertain to us. It's all part of the plan and our job is to deal with that plan as it unfolds.



Good luck and Godspeed



JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.