Countdown to the Santa Claus Rally: Will Tech Lead the Charge?
With just a week to go, traders eye whether the rally starts early, and if the old tech favorites steal the spotlight.
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There is just one more week until actual Christmas week begins. In fact, they tell me that the Santa Claus rally typically starts the day before Christmas, which would be one week from today.
Are folks going to jump the gun and flock back to the same old names one more time, or will they return to the names they discovered in November? I suspect they start with the tried and true (tech stocks) and maybe near the end, they branch out a bit further.
Nasdaq did in fact keep the streak going—meaning three red days is all it can muster since April. I truly hope there is not much follow-through, only because I think if the market can wait until it is fully oversold, we will end up with a better tradable rally.
Speaking of losing streaks, the SOX is now at day number four. On its own, it’s not a big deal, but here we haven’t seen a five-day losing streak since May. So perhaps on Wednesday, it will be the semis’ turn to rally. The SOX is down seven percent in four trading days, so it would make some sense.
I would prefer if it enjoys an up day and then spends the next few days falling back toward that uptrend line, since that would give us a good oversold condition in this group for a Santa Claus rally.
Of course, the problem for the rest of the market is that if NVIDIA rallies, it will probably suck the life out of the 493, which were all the rage last week. That’s the nature of the market.
In any event, Nasdaq did make a lower intraday low on Tuesday, and for the first time in a week or more, there were fewer stocks making new lows. A very minor positive divergence. The other Nasdaq indicators we discussed yesterday have not changed very much.
Then there is the McClellan Summation Index for the NYSE. It stopped going up on Tuesday. It hasn’t turned south yet, though. That would take another day or so of poor breadth. So, it seems to me if NVDA rallies at the expense of the 493, then we can expect the Summation Index to roll right back over.
In terms of sentiment, I see very little change overall. I think there is a lot of complacency about a year-end rally, even though the last few days seems to have made some question that view. I’ll make you a bet that if we see technology rally, all that cautious talk will quiet down in a hurry.
One point of sentiment that is interesting is that for the last three trading days the put/call ratio has been over .90. That means the ten-day moving average that got down to .84 last week has pushed back to .87. Again, if we can let this pullback last a few more days we can be oversold with the ten-day moving average of the put/call ratio back over .90.
