VXV, the measure of longer term volatility hit lows today that have not been seen in all of 2016. Just a cursory glance at these low levels of the long term volatility measures mark at least breaking points in the uptrend over the last few years, as seen by the SPX chart in green below.
Everything is bullish - and again extremely so. McMillan's Put/Call ratios are at extremely low levels, so when the sell off comes, it could be a big one.
The Santa Claus Rally period ended today with a positive gain. This is generally positive for the markets in the short term, but there are two other test coming up: 1) the first five trading days of January and 2) the month of January. If these are both positive periods, then the market will most likely trade positive for the year.
From the Stock Trader's Almanac "Including this year, Santa has paid Wall Street a visit 53 times since 1950. Of the previous 52 occasions, January’s First Five Days (FFD) and the January Barometer (JB) were both up 28 times. When all three indicators were positive, the full year was positive 26 times (92.9% of the time) with an average gain of 17.8% in all years."
A big test is ahead however as market downturns usually happen when Republican presidents are new to office. The promises made during elections often do not turn into immediate outcomes for the US economy. The table from the Stock Trader's Almanac (2017) highlights this, as 4 out of 5 new Republicans led market declines.
Furthermore, first year's under Republican's is usually a difficult time.
