The month ahead: December 2007

Fundamental view:
The credit/liquidity crisis is still there and housing is still making new lows. What more is there to say? The market is predicting more and more a hard year for 2008 with the possibility of a recession in Q4 2008. For now, the market is waiting for the FED to cut rates one more time at the December 11th meeting. Otherwise, there isn't much to say except that it will be very interesting to see December data come out. Jobs and inflation will be of particular interest as these two points have shown a certain strength that has been missing in the rest of the economy. The market seems also more rational following the little panic we had on November 26th. The panic seems to have cooled everyone and we are now all a bit more rational. So next time we climb up, we might do it in a more orderly fashion. This move reminded me of what happened in mid/end June 07 when we saw some extreme bearishness conclude the downward run we had started a couple of months before.

For now, we might end our bullish trend with the rumours circulating in the markets. Noises say that the government is toying with the idea of a freeze on mortgage rates, which would most likely stem the housing foreclosures we've had in the last few months.

Seasonal/statistical point of view:
Last year the beginning of December had signalled the end of the summer/autumn rally as the market reversed sharply and quickly went on to loose a bit over three bucks.... But looking at history, December has never been a month prone to see lower prices... The main theory is that as year end approaches, people dump there risky holdings and buy safe haven assets like govies. Altough this year, I would bet that a majority of persons have already dumped their risky assets. Anyhow, looking at a seasonal chart, the trend is clearly for higher prices. Over the last 7 years, only twice did we see prices drop... Over 20 years, prices fell only 7 times during the month of December.
Looking at our elasticity index, we can see that there is nothing to do on a weekly basis but at least we saw some action during the month of October on the daily elasticity model. Right now, both models suggest "nada"...

Technical point of view:

After blasting trough all the resistances during the month of November, we will most probably test those new supports as the market might give back part of what it has taken in the last few weeks. Why this bearishness ? The answer can be found in the post of November 30th, where we talk about a weekly reverse hammer... The supports for December are the 117-10 zone (on it right now), the 116-10 area, the 115 level, 114 level and finally the 112 zone. The last few supports might be hard to reach but the first three are do-able. If ever the market goes the other way, there is not much to look at. After the 119-15 area there is nothing before the tops we visited in mid 03 at 124-12.