How many times have we heard “The Santa rally is coming” this month only to be caught in a choppy market that has option traders gasping for air. This year has been anything but normal which leaves us wondering if the Santa rally came early of it is coming at all. Let us not forget the incredible 10.9% November rally that the S&P had which can be argued happened because all of the good news was being priced in; from positive vaccine data to a promising stimulus package.
What is the “Santa Rally”?
Santa Rally refers to the phenomenon that occurs nearly every year which brings a short, sweet but respectable rally the last five days of the year. Problem is, no other year has the market been faced with so much uncertainty. Yes, this market has shown us how resilient it is by rallying to new highs from the March lows but can it sustain at levels considered by analyst to be overbought and overvalued.
Odds favor the Bulls and here is why…
The amount of cash on the sidelines and the Fed’s decision to keep interest levels at nearly zero. Jerome Powell time-after-time continues to throw warnings at the bears letting them know that there is still plenty of led to load the cannons with. Bonds are dead, the dollar is melting down and equities continue to climb despite bearish headlines. New Covid-19 strain, another stall on the Stimulus, and stricter lockdowns; and yet the market continues to break records. The ever lagging Russell has finally broken a decade long resistance and continues to melt faces as it rallies week after week and here we are, waiting for a Santa Rally.
The tape is the best indicator as which direction we are heading; and the tape says up. With smart money betting as high as 3850 for the S&P by the end of the first quarter of 2021 I wouldn’t want to stand in front this moving train.
What will most likely signal that the Santa Rally is happening?
FAANG, FAANG and FAANG; the mega cap market leaders that have been in a deep slumber after hitting their highs back in September. Technical analysis suggest that FAANG is due for a breakout any day now and this will most likely spark the rally.