A Recap, And A Big Thank You

12/19/08 4:15 PM EST

First off, I want to say a most heartfelt "thank you" for the overwhelming wishes of good will, prayers, and offers of support after our daughter's seizure yesterday morning.  From New York to Los Angeles, the Arctic to South Africa, Slovenia to Hawaii, my inbox almost reached capacity.

It made my wife cry more than once, and I'll admit to tearing up a few times myself.  It's incredible to see that no matter how much some of you have endured (and some of your situations are truly heartbreaking), you're still willing to do what you can for others.  In the face of all the social acrimony that is becoming more and more apparent, this was a heartening sign that there is still an enormous amount of goodwill in the world.  So thank you...from me, my wife and most especially our daughter.

In terms of her prognosis, we still don't know much.  We met with a neurologist today, but her tests won't be completed until January.  He ended our interview confident that she suffered from a relatively routine cause of seizures, and gave less than a 1% chance of something more nefarious at work.  We pray that's the case.

As for much less important matters, we left off last week with an upside reversal off of a large gap down open, as the indices followed through on their historical tendency to recover from dramatic openings.  In the process the major indices held support, and combined with everything else we discussed last week, the outlook over the coming month(s) continued to look alright.

Earlier this week we looked at a couple of tendencies related to where we are seasonally.  In terms of FOMC meetings, the month of December and the looming futures/options expiration, there was a pretty clear positive bias to these weeks historically.  Equities responded well to the FOMC announcement on Tuesday, and showed a classic follow-through to the seasonal patterns we looked at Monday and Tuesday morning.

As we discussed mid-week, the S&P 500 has jumped 3% or more on the day of a FOMC announcement four other times since 1995, and equities pulled back over the next 1 - 4 days each time (before ultimately rallying again).  During the post-Fed short-term pullback, in all of the instances the S&P held above the close prior to the FOMC day (868ish on the cash S&P 500 index in our current case), and so far we're seeing that again - but the index better get moving to the upside again very quickly or it will violate that pattern.

In the process the S&P 500 reclaimed its 50-day moving average, a feat that got a surprisingly large amount of attention.  I'm no big fan of moving averages except as a general indicator of trend, but on Wednesday we looked at what's happened in the past when the index closed above its 50-day after suffering through more than a quarter below it.  The results going forward weren't all that compelling either way, except for perhaps more weakness than usual over a three-month time frame.

Despite that apparent negative, and the fact that the market failed to follow through from a somewhat similar pattern in October, from an intermediate-term perspective of one to three months things still look alright (see here and here and here).  A move back under 850 would have me seriously questioning that idea, and a break of 820 will see me all but abandon it.

For next week, seasonality will be a focus for many traders.  Volume should be exceptionally low, and become lower as the week wears on.  The last 7 trading days of December have been positive 64 out of the last 80 years on the S&P index, a win rate of 80%.  The average return was +1.2%, with an average maximum gain (+2.0%) that was twice the average maximum loss (-1.0%).

That seasonality will be tested, since we're going to get hit with a blizzard of economic releases on Tuesday and Wednesday.  We've seen some positive reactions to bad economic and corporate news lately, which is a good sign of selling exhaustion.  If that continues next week, or we somehow manage to get a few positive surprises, then it should help lift the tape even more.

Once again, I extend a very heartfelt "thank you" for your exceptionally kind messages of support.  It meant a lot to all of us.

Have a safe and relaxing weekend,