Will there be a Santa Claus Rally?
In mid Oct, the indices recorded their largest 1-day advances since a rebound from the throes of the COVID crash more than 2 years ago on lower than expected inflation. Will the rally on Wall Street continue? Will we have a Santa Claus Rally this year? Has the bear market bottomed?
Nasdaq
From Fig. 1, Nasdaq got rejected at the downtrend line. It made lower highs. It is also below the MA200 and MA50. This is bearish.
S&P
From Fig. 2, S&P got rejected at the downtrend line. It made lower highs. It is also below the MA200 and MA50. This is again bearish.
Dow Jones Industrial Average
From Fig. 3, the DJIA is the most bullish of the 3 indices. It rose to around 34,700 which was higher than the previous peak. It is also above the MA200 and MA50. However, it got rejected at Downtrend line 2 joining the Feb and Apr peaks.
The indices have been falling since the Fed hike rates by 50 basis points at the Dec 14 meeting. Jerome Powell said the Federal Reserve is not close to ending its anti-inflation campaign of interest-rate increases as officials signalled borrowing costs will head higher than investors expect next year and indicated they don't think a new round of interest-rate cuts will begin until 2024. Stocks sold off after the hawkish remarks.
Policymakers projected rates would end next year at 5.1%. The dot plot is not set in stone. It could very well be 6-7% if inflation stays high. Chatter had been growing that the Fed would only lift rates by 25 basis points each at its meetings in the first half of next year amid cooling consumer prices and slowing job market growth. The Fed may very well continue to hike at 50 basis points.
The DJIA is likely to follow the other 2 indices below the MA200 and MA50. Santa Claus Rally is a rally in the last 5 trading days of the year and first 2 trading days the next year. It is unlikely that there will be a Santa Claus Rally this year. This portends that next year will be a bad year. From Fig. 4, you can see that if there is no Santa Claus Rally, the next year will be a down year most of the time.
The next important question is whether the bear market has bottomed yet. The history of bear markets is such that no bear market has ever bottomed before the recession started. We don't necessarily need to see the full breadth and depth of the recession - we need to see the start of it before the market can bottom.
Additional reading on why a Santa Claus Rally may fizzle out: Santa Claus Rally may fizzle out
$SPDR S&P 500 ETF(SPY.US$ $Invesco QQQ Trust(QQQ.US$ $Tesla(TSLA.US$ $Apple(AAPL.US$ $FTSE Singapore Straits Time Index(.STI.SG$ $AEM SGD(AWX.SG$ $SIA(C6L.SG$ $Rex Intl(5WH.SG$ $RH PetroGas(T13.SG$ $Geo Energy Res(RE4.SG$ $Golden Energy(AUE.SG$ $LS 2 Holdings(ENV.SG$ $Nippecraft(N32.SG$ $Parkson Retail - watch list(O9E.SG$ $Acesian Partners(5FW.SG$ $Mencast(5NF.SG$ $Pollux Prop(5AE.SG$
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SPACELIGHT : Ask Santa.
Carl_Hui : Hope so. Too many bad news this year
Johnnie Worker : Better call Santa!
000000000 : not possible. institution investors are staying out and only retail investors are bullish. shrinking volume and bearish sentiments
bullrider_21OP 000000000: Agree. Falling U.S. indices may be signalling that there will be no Santa Claus Rally.
bullrider_21OP : Added an additional reading on "Santa Claus Rally may fizzle out" at the bottom.
bullrider_21OP Johnnie Worker: Santa Claus is stuck at the North Pole.