Market Summary
Sellers took vacation last week and the program driven “short squeeze” rally triggered three consecutive days of triple-digit gains in the DOW Industrials. As seen in the updated chart below, the surge in equities boosted the S&P 500 index into positive territory for the year. The Nasdaq index has been in the black since September, but the other major indexes are still in the red year-to-date. Precious metals remain the biggest loser with gold in bear market territory down 22% for the year. For the week, the Benchmark S&P 500 Index and Blue Chip Dow Jones Industrial Average jumped 2.90% and 2.80% respectively. The Nasdaq rose 2.50% for the week and Russell 2000 gained 2.7%
Last week’s analysis mentioned “…With traders starting to take holiday sabbaticals the next few weeks
trading volume should be lighter than normal. This provides an opportunity for
the stock market to recover as it normally does going into year-end because
market moves can be exaggerated on lighter volume…” While many traders
started vacationing last week, algorithmic trading kicked in to start the
“Santa Claus” rally during the abbreviated trading week. After the melodrama
about whether the Fed would raise interest ended, the net result is that
interest rates are still near historically low levels. Low rates are typically
bullish for the stock market and as we head into “the best six months of the
year” for stocks, there is no reason this trend won’t hold up. The U.S. economy
continues to chug along and stocks remain the best game in town. You can see in
the graph below how the major equity indexes have had a scorching
fourth-quarter. The biggest near term threat to the stock market will be
quarterly earnings results when they are reported early next year. If
fourth-quarter earnings disappoint, this might panic investors into believing
the economy is weaker than they thought and spark the next market sell off.
Investment Analysis
Last week we noted “…the week after December triple-witching option expiration, which has a historically bullish record…” As reported by Jeff Hirsh in the Almanac Trader,the three trading days following the
Christmas holiday break, also has a bullish track record over the past 31
years. These three days also rank near the top when compared to all other
market holidays. Average and median gains across DJIA, S&P 500, NASDAQ and
Russell 2000 are fairly stable and consistent on each of the days following the
Christmas holiday. We have been on the sidelines the past few weeks waiting to
see how traders responded to the recent Fed rate decision. Our preference is to
try avoiding unnecessary risks when setting up trades and it was important to
let the market provide direction after the first rate increase in almost a
decade. Yearend tax loss selling appears to be over where investors sell off
losing positions to offset stock gains and other income, which is why the
market is moving higher on lower volume. In the graph below, Consumer Staples
and Health Care are the best performing sectors over the past month and these
groups can be expected to be among the leaders going into the New Year. Bidding
on stocks in the leading groups should be a good bet to start the year.
By Gregory Clay
Investment Strategist
Click here to
gregoryclay@theoptionplayer.com
P.S. click on http://www.theoptionplayer.com/
No comments:
Post a Comment