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Put Mickey on Your Mantel This Christmas

U.S. equities continue to stagger around like a brave-hearted boxer who's taken a few too many shots to the head. They're not quite ready to keel over, but it's hard to shake the impression that one more stiff jab could knock them right over on their back, out for the count.

As long as the November lows hold, however, the bulls still have a chance. So for everyone looking for any glimmer of hope that all is not lost, let me note that there is a compelling historical case to be made for at least one more rally.

The big back-to-back decline of the Dow Jones Industrials on Friday last week and Monday this week set the benchmark index back by -4.1% over five days. That setup has occurred 15 times in Decembers since 1929 and paradoxically has bullish implications. Tony Kolton, who is founder and head honcho at Logical Information Machines in Chicago, says that in every instance the Dow was up by an average of 4.2% over the next 20 days. That yields a target of 13,720 on Jan. 16.

These instances occurred in 1932, 1933, 1937, 1941, 1957, 1973, 1974, 1975, 1980, 1982, 1996, 1997, 2000 and 2002. The largest returns were in 1937, 1982 and 1996. The most recent, in 2000 and 2002, were positive by 0.7% and 1.9%, respectively. While those aren't the kind of numbers that will make bulls absolutely ecstatic, they should at least give bears a pause. They essentially suggest that the broad market will be higher four weeks from now, so it's probably not a great time to press big bets on the short side right away.
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