After Choppy Santa Claus Rally, More Small-Cap Speculation Is Likely
Some smaller stocks are seeing strong moves, but end-of-the-year pressure will prevent sustained breakouts from developing.
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In a thin trading session on the day after Christmas, many small caps enjoyed a Santa Claus rally. The positive action wasn’t reflected in the S&P 500 or other major indices, and the business media failed to recognize the action, but hundreds of small stocks enjoyed some feisty action.
While market participants have been talking about a Santa Claus rally for a while now, what many fail to recognize is that these year-end rallies tend to be very choppy and inconsistent. While the indices end up with small gains, about 80% of the time it tends to be very inconsistent action.
After one day of strong speculative action in small caps, it is likely there will be another as those who missed out on the party start to look for some pockets of momentum to trade. There should be more small-stock movers, but this is not action that can be trusted to last for very long.
There are only three full days of trading left in 2024, and there are very likely to be some positioning moves. There is almost always one bout of profit-taking at the end of the year as some big players raise cash levels in preparation for a fresh start when the calendar rolls over.
The most important thing to do right now is to not let short-term trades turn into long-term investments. If you catch some big movers, there is a good chance that they are not going to produce breakouts that lead to new trends. These are trading vehicles and not investment vehicles and many of these stocks will offer better entry points in January after positive seasonality starts to turn down.
Early indications on Friday are slightly negative, but this is about stock picking and not the indices.
At the time of publication, DePorre had no positions in any securities mentioned.
