The Santa Claus Rally Is Off to a Good Start
It might not look like much right now but market internals are impressive.
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Not that it counted for much in the grand scheme of things, but the traditional Santa Claus rally period got off to a solid start on Tuesday. I know... I know... it doesn't look like much right now, as we painfully rip our greasy noggins away from our disgusting pillows at zero dark thirty on Thursday morning. U.S. equity index futures are trading moderately lower overnight coming off of the national holiday in the U.S.
Remember, European markets remain closed for the December 26 Boxing Day holiday. That's right, many historically-Christian European nations take two days for Christmas, the second of the two, Boxing Day, meant to donate cash or gifts to those in need. Asian markets opened on Thursday and for the most part traded higher, as did crude oil in response to news that Chinese authorities in Beijing had agreed to issue the equivalent of $411 billion worth of special treasury debt securities in 2025 as part of a fiscal plan to prop up a lackluster economy.
U.S. Equities
Tuesday may have been a half day of trade, so trading volumes were light, meaning that we still do not have a confirmation of Friday's high-volume, triple-witching upward day one change of trend, as Monday was more or less a continuance of that move. That said, I think we'll take green arrow days whenever and wherever we can get them, especially if it gets Santa off on the right foot rather than having the fat-and-jolly fellow playing from behind from the get-go.
U.S. treasury debt securities really went almost nowhere on Tuesday. On Thursday morning, the curve is showing some moderate weakness (slightly higher yields) from the belly on out to the long end. On Tuesday, the S&P 500 gained a sharp 1.1% as the Nasdaq Composite scored a green candle day worth a 1.35% move. For both of those major indices, as just mentioned, Tuesday was a third straight "up" day. The Tuesday rally may have occurred on light-ish trading volume, but at least it was broad in nature. The Dow Transports, S&P MidCap 400 and S&P SmallCap 600 were up 0.8%, 0.75% and 0.93%, respectively, as the KBW Banks popped for a gain of 1.23% and the Philly Semiconductors ran 1.07% to the upside.
All 11 S&P sector SPDR ETFs traded in the green on Tuesday, with the Discretionaries XLY leading the way at +2.31%, thanks to the autos, as Tesla TSLA and Nissan NSANY both gained more than 7%. The Financials XLF and Tech XLK both also gained more than 1% for the session. During what was a short, but risk-on kind of day, cyclicals and growth-type sectors took the top-six slots among the 11 on the daily performance table as defensive type sectors took four of the bottom-five spots.
While aggregate trade was obviously significantly lower than it had been on Monday, the market internals were impressive. Winners beat losers by more than three-to-one at the NYSE and by a rough seven-to-three at the Nasdaq. This happened while advancing volume took a commanding 80.7% share of composite NYSE-listed trade and an almost as crisp 78.9% share of composite Nasdaq-listed activity.
Joy to the World
On Christmas morning, Bloomberg News reported that the Russian military cargo ship that sank in the Mediterranean Sea earlier this week was the target of a terrorist attack, according to Russian state-run media. The Ursa Major, Russia's largest cargo vessel, suffered a series of explosions on its right side, was lost on Monday, had a cargo capacity of 1,200 tons. 14 members of the 16-member crew were rescued.
On Christmas afternoon, Bloomberg News reported that Russian forces had launched a large-scale attack on Ukraine's energy generation infrastructure, forcing Ukrenergo, the nation's electricity utility provider, to limit supply for the day. Ukrainian President Volodymyr Zelenskyy posted on the cloud-based social media platform Telegram that Russia had fired 70 missiles and more than 100 drones in the attack and that some of the missiles were ballistic in nature.
Their attack on the nation's energy infrastructure, which is not a new idea, came just five days after Russia's first attack on the capital city of Kyiv in close to a month. I was thinking of further reducing my long positions in large U.S. defense contractors such as Lockheed Martin LMT, General Dynamics GD and RTX RTX ahead of the inauguration and the potential impact of the DOGE boys on fiscal policy, but maybe I'll just hold that thought for a little bit. Maybe I have reduced these holdings enough. The world is still a dangerous neighborhood.
Just Say No
Barron's ran a piece by Josh Nathan-Kazis on Christmas Day discussing what the bird flu is doing to California dairy farms. This isn't pretty, gang. Apparently, the H5N1 bird flu has now infected 65 humans in the U.S., of which more 30 have been in the state of California and 660 of the state's 984 dairy farms have had USDA-confirmed cases of the virus among their bovine population. California, for those unaware, is easily the largest milk-producing state in the U.S., having generated 40.9 billion pounds of cow milk in the year 2023. This was 18% of total U.S. production.
Scientists still don't know if this virus is being carried on equipment that goes from farm to farm, on workers who provide services to multiple farms, in insects such as flies that seem to have a persistent presence wherever these kinds of animals congregate, or if the virus is airborne. What we do know is that the U.S. Department of Agriculture is taking up biosecurity, such as cleaning equipment used at multiple farms in between visits to different farms and more often than that if necessary and that California Governor Gavin Newsom has declared a state of emergency.
Don't expect food prices to fall sharply anytime soon. We all have seen egg prices absolutely rip higher in late 2024. The average price of a gallon of milk in November was $4.13 and, just from personal observation, will be higher still for December. The average price for a gallon of milk was as low as $3.55 for full-year 2021 and $2.90 as recently as full tear 2028.
Nice Setup?
Advanced Micro Devices AMD is not set to release the firm's fourth quarter financial results for about another month. That said, at least technically, the stock may be at a point where re-initiating or reloading on the long-side might start to look prudent.
You kids see the foundation laid for a double-bottom reversal? I see it. It is there. Of course, there is no such thing as a free lunch, but the stock's RSI is up off of the canvas, and within its daily MACD, the 12-day EMA looks poised to make a run at the 26-day EMA.
Sure, the stock is trading below all three of its key moving averages, and that could show up as resistance, but taking those levels would also bring the swing crowd on board as well as force portfolio managers to increase exposure. We will see. Should this pattern fully develop, the pivot would be $174, which is pretty lofty for a stock trading in the $120s. That said, should AMD get there, a target price between $205 and $210 would not be ridiculous.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 218,000, Last 220,000.
08:30 - Continuing Claims (Weekly): Last 1.874 million.
10:30 - Oil Inventories (Weekly): Last -934,000.
10:30 - Gasoline Stocks (Weekly): Last +2.348 million.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly earnings scheduled.
At the time of publication, Guilfoyle was long LMT, GD, RTX and AMD equity.
