Get Your Shopping List Ready: Santa Claus Rally Can Hit When Least Expected
The best rallies are those that are not anticipated and it's too early to give up on a Santa Claus rally.
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Following the surprisingly negative reaction to the Fed on Wednesday, market action was mixed and fairly quiet on Tuesday. The major indices closed near the lows of the day, and the S&P 500 continued its record-breaking streak of negative breadth. While there was some bounce action in a few places, such as the Magnificent Seven MAGS, there wasn’t much of an appetite for bargain hunting at this point.
Market players were in no hurry to jump in ahead of the PCE inflation news on Friday morning. There is also rebalancing of various indices taking place as well as quad witching expiration. While sentiment has shifted sharply, it isn’t so severely negative to set the stage for a strong snapback.
I remain optimistic about rotation into the stocks that have been struggling for a couple of weeks now but an immediate bounce after Wednesday’s pounding would have been an invitation to reduce exposure into strength. We still have bulls hanging on that need to be washed out to set the stage for stronger positive rotation.
There are some folks who are giving up on the idea of a Santa Claus rally, and that is a good thing. The best rallies are those that are not anticipated. The more likely that market players think a rebound might be, then the greater the likelihood it will occur. The hard part is getting the timing right.
My best advice is to have a shopping list and be ready to move fast when the price action improves.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
