The Santa Rally Is Seriously In Doubt

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In his Daily Market Notes report to investors, Louis Navellier wrote:

Quadruple Witching Day

A huge quadruple witching day in options is in play today.

An estimated $4 trillion in options are expiring today and will create technical moves that are largely unpredictable as market makers cover their exposure. The S&P closing below 3,900 yesterday has the chart followers nervous as it breaks an important support level.

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Too Hawkish

The general consensus is that inflation has clearly peaked and the Fed is being way too hawkish to infer they need several more modest increases to push down inflation. The Fed's plan is putting pressure on 2023 earnings estimates as the specter of monetary tightening into a slowing economy, which has never happened before, leaves people cautious about making bullish forecasts.

Today, we're seeing the US 10-year up 6bps to 3.51% and the 2-year flat at 4.25%. The US dollar is essentially flat at 104.2 Gold is back over $1,800 while crude oil is back under $75, down 3%.

On the international front, most stock markets have followed the US into the red, as central banks are taking the US Fed's lead to focus on inflation. In Ukraine, Russia has launched a new missile offensive. In China, concerns are mounting that their easing of Covid restrictions will result in huge outbreaks in the short term.

Santa Rally In Doubt

The bearish sentiment is high, the technicals aren't good and the Santa rally is seriously in doubt. If we start next week with another downdraft the optimists may capitulate that we're still in a bear market and headed back to test the October low.

As before, high-value stocks, which haven't already been slammed hard, are the most vulnerable. Stocks with reasonable P/Es, steady earnings, dividends, and share buyback programs will be the most resilient.

Coffee Beans

As of mid-December 2022, 532 journalists were in prison due to their work. China is the most prolific jailer with 99 journalists identified as being imprisoned there (plus 11 in Hong Kong) – in line with President Xi Jinping consolidating his control over the country and implementing tighter controls on the media. Source: Statista. See the full story here.