Market Prep: Christmas Rally or Flop?
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TOP THINGS TO WATCH THIS WEEK:
- Current Market Rotation Trends over the last month can be partially attributed to omicron variant. Will we continue to see a move away from technology into more defensive names? Will this shift matter for the continuation of the broader US Market?
- Low Volume this week because of Christmas Holiday: Low Volatility or Storm Brewing? Is the Santa Claus rally over?
The post FOMC price action burst the markets bullishly higher toward 52-week highs, but it quickly faded, and the OPEX gamma pin zone we have been discussing clearly prevailed. Was that it for the Santa Claus rally?
The SPY is again at some critical supports with the 50 EMA at 4596.00 and the fib retracement zone in the 4590.00–4620.00 zone. We will be using the 4600.00 area as a bullish/bearish pivot. Any further breakdown below the level will have us start considering the bearish scenarios. However, option market data points to volatility being expressed to the upside based on expansion of realized volatility given OPEX on Friday (Spot Gamma).
The potential for higher rates continues to weigh heavily on technology and growth stocks whose valuations rely heavily on future earnings potential. In the last month, the Nasdaq has fallen by -3.43% and the Russell 2000, which tracks the performance of small-caps, fell 8.32% in the last month.
On the other hand, cyclical stocks in the energy and financials sectors outperformed on Thursday, with the prospects of higher interest rates and stronger growth seen as benefiting these sectors. The Dow Jones (DIA) has only lost -1.23% in the month and has been trending upwards in December. As always, it’s important to balance a portfolio with both growth and value stocks.
Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.