For Months now, Mary Ann Bartels has been warning of a stock market correction. The Chief Technical Analyst at Bank of America Merrill Lynch is out with a note today saying that a test of the October lows is now underway and Santa Claus isn’t coming. From the Wall Street Journal:
“Last week the S&P 500 fell below its 50-day moving average, which is the new level to watch — 1228. A failure to move above and hold the 50-day moving average confirms to us that we have already begun to enter the phase of testing the October lows near 1100-1074.
This pattern is becoming eerily similar to 2008 into 2009. A base building process has been underway since August but we have maintained the belief that the lows still need to be tested and undercuts to 985-935 are possible (50% probability) as part of this process. We expect a new cyclical bull market to emerge near 2Q12. Time and patience are needed.”
If she’s right and the customary Santa Claus Rally does NOT come, it is usually a warning sign to market participants that a bear market is coming. The saying goes,
“If Santa Claus Should Fail to Call, Bears May Come to Broad and Wall”
According to the Stock Traders Almanac, Santa’s failure to show up preceded several sell-offs over the last decade. 1999’s 4% loss going into year end came just before the Dow Jones Industrial Average suffered a 33-month 37.8% slide. In 2007, the 2.5% loss came just before the Financial Crisis and second worst bear market in history.
History tells us to pay close attention to how we finish up the year.