Will we see a gathering of Santa Claus this year?

Investors are anticipating the phenomenon that occurs not only around most national holidays, but especially during the Thanksgiving to Christmas season called “The Santa Claus Rally” on Wall Street.

This effect typically occurs around December and retail investors look forward to taking advantage of this “seasonality”.

Why is this happening?

There is no precise reason, but the best-informed guesses assume that these factors constitute this effect:

• Large institutional investors take time leaving markets in the hands of retail investors who enjoy lighter volume and more positive influence.
• The holidays in general have a more optimistic tone and retail investors can see this in market cycles.
• Tax considerations are often already factored into the market in November and early December, leaving the holiday period for one without these considerations (and the sale)
• Retail sales for the holidays are more robust and this leads investors to believe the economy is doing well (or better).
• Companies pay end-of-year bonuses and profit-sharing contributions. People also plan more for their year-end retirement, and many of these reasons mean that more money can flow into the stock market.
• Individuals, more than institutions, view the New Year with optimism and want to get a head start on next year’s financial goals.

Will it happen this year?

It could very well and with 2 weeks before the start of the new year we could have a rally. So far, December 2021 has been a dud when it comes to holiday gatherings. But don’t despair, we could still get a very robust and roaring rally.

However, as most of you know, most of our metrics haven’t released it. In fact, our indicators (gauges) say the opposite. Something doesn’t smell right.

What’s going on now?

Lots of cross winds. Inflation, COVID (Omicron), a Fed that seems to want to tighten (or at least decrease), a potentially slowing economy, very high multiples on many growth stocks and concerns about what financial markets might bring in 2022.

This led to one hell of a week of bearishness, but the most interesting thing about countering all the negatives is that Cathy Wood’s (NYSE 🙂 ARK Innovation ETF had a good rebound on Friday and could be a leading indicator that the sale might be overkill. .

This flies in the face of the Risk Off reading showing short-term relative strength of value stocks () versus growth (). (For more on this, check out Mish’s interview on stock charts)

We present the Big View scenario as follows:

Bullish / Risk activated

• SPDR® (NYSE 🙂 remains the only index still in a bullish phase and maintains support at the 50-day moving average
• The only symbol of the modern Mish family that is still in a bullish phase is Semiconductors via VanEck Semiconductor ETF (NASDAQ 🙂
• ARKK (Cathy Woods’ biggest ETF) rebounded strongly on Friday, closing positively for the week, diverging from () which was down more than -3% for the week.

Bearish / risk disabled

• Risk Gauges have switched to Risk-Off
• 3 of the 4 key market indices have weakened this weakness and have undergone declining market phases
• The iShares Russell 2000 ETF (NYSE 🙂 closed at the bottom of its 6-month calendar range, a crucial support level that must be maintained to prevent further sales
• QQQ has the worst volume models of the major indices with 3 days of distribution and only 1 day of accumulation in the last 2 weeks
• The risk aversion pattern was evident when looking at the rotation of sectors, with consumer staples () and utilities () up more than 1% on the week while semiconductors (SMH) , technology () and consumer discretionary spending () were all down -4% or more
• Sentiment readings show the number of stocks within SPY above their 50-day moving average fell below 50%, potentially signaling additional vulnerability
• Market insiders are showing weakness, with the McLellan Oscillator posting negative values ​​on SPY and the Hindenburg indicator posting 20 Omens, the most omens seen in years.
• The Cash Index (.X) maintained the levels we highlighted last week and rebounded, potentially showing more bearish for the market
• Value stocks (VTV) now lead relative to growth stocks (VUG) after 6 months of underperformance, an indication of the lack of risk
• (NYSE 🙂 momentum has improved and attempts to confirm above the 50-day moving average next week, with Friday’s close above the 200-day moving average in between

Neutral metrics

• Considering the skyrocketing of the Omicron variant, a clear market reaction was a + 4.9% performance for the week by Biotech via iShares Biotechnology ETF (NASDAQ 🙂
• Treasuries () are still stuck in the same trading range that started at the end of June
• Soft Commodities () is still hanging on to a bullish phase, stabilizing on a weekly basis against SPY and could be based on a much larger move
• Foreign stocks underperformed US stocks
• The Turkish lira continues to tumble (+ 18.3% over the week), with inflation exceeding 21% per year
• Despite the massive sell-off on () Friday and its split below the 50-day moving average, it has consistently outperformed the market on a relative basis.

Crypto

• (BTC) saw daily close below its 200-day moving average on Friday and Saturday, but appears to be holding support at its 50-week moving average with $ 50-52,000 as the closest bullish price target
• (AVAX) is the hottest large cap challenge coin of the week, up 46% after hitting $ 79
• (ETH) is currently trying to restore support at $ 4,000 and still maintains a long-term trend established in July 2021
• (SOL) also saw a strong recovery of 19% this week. Announcements by celebrities such as Michael Jordan and Melania Trump regarding the launch of their new Solana-based services / NFTs have drawn mainstream attention to the challenge coin