There was going to have to be a sell off. After an over 10% rally the S&P has now sold off from 2110 down to 2043, as of this morning, that’s a 76 handle sell off with the ESZ15 down 6 out of the last 7 sessions. Is it a bear market or just a pull back before the November expiration and holidays? We believe it’s the latter.
With all the ‘fed talk’ yesterday it seemed to raise the bar about the possibility of a December rate hike. The S&P did not respond very well to that as it was down over 1% for most of the day. The banks reacted to all the talk and have been the best performing sector in the S&P since the October fed meeting. What happens after the rate hike could be a different story. Right now the S&P is looking past earnings and looking forward to the December Fed meeting. It’s been over 9 years since the last rate hike and no one really knows how the markets will react. Will there be selling leading up to the hike and a rally after or will the markets see the hike as the end of the easy money? Our feeling is the the size of the rate increase will be small and future hikes will be data dependent. So it’s unlikely that the fed will be in a hurry, nor will the markets fall apart.
Thanksgiving and Christmas Holiday RIPS
Right now the markets are moving lower but that is not how the holidays seasonal really will work. While the Thanksgiving season is historically strong, including the DJIA having closed higher 16 of the last 21 weeks before Thanksgiving, MrTopStep thinks the real rally will start in December.
Most readers are gearing up for the Thanksgiving holiday and the end of the year rally. Yesterday we put out the Stock Trader’s Almanac view of how “November opens strong, peaks around the fourth trading day, trades lower till the eighth trading day, bounces mid-month, moves sideways to lower during the week before Thanksgiving, then higher to close out the month with gains ranging from just under 1.5% for Russell 2000 to over 2% for DJIA”, but we have yet to talk about the ‘Santa Claus Rally.’ While there are several months that have average gains, July and December tend to be two of the largest gainers. Many traders get confused about the timing of this rally, which actually comes from Christmas to early January. According to the Stock Trader’s Almanac, “Santa’s Rally begins on Wednesday December 24 and lasts until the second trading day of the New Year. S&P has averaged gains of 1.5% since 1969”.
And if you’re trying to set up a year end lay, don’t forget the Christmas rally doesn’t start on Dec 1, it goes from Christmas Eve to through the first week of the new year.
In Asia 10 out of 11 markets closed lower ( Hang Seng -2.15%), and in Europe 9 out of 11 markets are trading lower (DAX -.80%). Today’s economic calendar includes PPI-FD, Retail Sales, Business Inventories, Consumer Sentiment, EIA Natural Gas, Cleveland Federal Reserve Bank President Loretta Mester speech on the economy and monetary policy, in Cleveland.
Our View: The markets closed weak, and we expect them to be weak Friday. Yesterday the S&P could not hold one rally and basically went down all day. My call yesterday was to to sell the early rallies and buy weakness, I had the first part right, but it was all sellers. Our view is for more of the same, sell the early rallies and buy weakness. Start looking for the PitBulls low the week before the November expiration.
See all of the November expiration stats here…
As always; please use protective buy and sell stops when trading futures and options.
- In Asia 10 out of 11 markets closed lower : Shanghai Comp. -1.43%, Hang Seng -2.15%, Nikkei -0.51%.
- In Europe 10 out of 12 markets are trading lower : CAC -1.01%, DAX -0.90%, FTSE -0.95% at 6:00am CT
- Fair Value: S&P -4.28, NASDAQ -4.80 , Dow -55.55
- Total Volume: 1.8mil ESZ and 6.3k SPZ
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