Will we get a Santa Rally?

I certainly don’t believe in Santa rallies as they are unpredictable at best. By definition Santa rallies happen in the 7 day period between Dec 23-Dec 31. Could we still get a final push higher before the gas runs out? Looking at what happened in the last 1.5 months, it feels like there is only one way to go and that is UP. 

But with markets so overbought, you need a solid reason to make that final push higher. And that push can definitely come if we get a cool CPI report on Tuesday, followed by a rate hike skip on Wednesday. (It must be obvious what will happen if we see a bad CPI or rate hike next week though)

QQQ 6m daily (Will my first forward test fail me?)

When every week is riddled with some kind of macro-economic data that creates a coin flip outcome, technical analysis becomes very hard. The MRI (market reversal indicator) that I am working on has done a very good job if I slap it on a 1 year chart on QQQ. But with Friday’s move, my first forward test seems to be in jeopardy. 

PS: The MRI indicator is a work in progress and it will take me months to evolve it and test its successes and failures. If you are curious, I am currently using multiple moving averages, zig zag candlestick patterns and volume analysis to plot those arrows. Anytime you see those arrows, please take it with a grain of salt. As I develop this, I will highlight it in my weekly market outlooks whenever the indicator shows an upcoming reversal. 

DIA 6m daily (relentless)

Unlike QQQ, DIA and SPY refuse to stop and have shown absolutely zero signs of stalling so far. Markets can stay overbought (or oversold) for a long time. A technical analyst’s job is to wait for the reversals to show up. In this case, that would mean waiting for DIA to drop below 70 and continue on that path for a few days and then react accordingly. Of course, there is no perfect indicator out there and if you look at the SPY chart below this one, you will notice that I got faked out a few days ago on a dropping RSI on SPY.

SPY – Did I step into a bear trap?

I waited for RSI to drop below 70 and then grabbed a few bear puts. But no indicator is perfect and I could very well have stepped into a bear trap. CPI on tuesday and FOMC rate hikes on Wednesday could still come to my rescue. But outside of that I will be left grasping for straws.

Oil, TNX, US Dollar Index

  • Oil may have bottomed out and could generate some bull call spreads if it starts heading up from here.
  • TNX is still in a downtrend but we saw a spike on Friday. Need to keep watching it closely.
  • U.S. Dollar Index is the only component that is showing a clear uptrend so far but we need a confluence of factors to confirm a reversal. As of today, I am still waiting and frustratingly seeing no such signs.

Market moving events next week (Here we go!)

CPI on Tuesday morning is the main event next week. The only thing that will pause this rally is a bad CPI. If we get a rate hike on Wednesday, that will be the icing on the cake. 

Having said that, the markets are pricing a 97.1% chance of a pause and the CME watch tool (link here) does a pretty good job with these predictions. We will see what happens on Wednesday.

Earnings 

Nothing important going on with earnings next week. 

Cheatsheet