Next 7 days are crucial for the stock markets, especially this year.
Historically, Christmas eve to 2nd trading day of the new year time period is bullish for US stock markets. According to Stock Market Almanac, the average S&P 500 gains over this seven trading-day range since 1969 are a respectable 1.3%
However, when this Santa Claus rally doesn't materialize, following years are often flat or down. Once again using data from SMA, the last six time this rally has not occurred were followed by three flat years (1994, 2004 and 2015) and two nasty bear markets (2000 and 2008) and a mild bear that ended in February 2016.
Attached below is Shiller PE for the last 100+ years and you will notice that valuation are quite stretched. This price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio), Shiller PE Ratio, or PE 10.
From price charts perspective, S&P500 has short term resistance around 3725+/- on the upside and 3645+/- support on the lower side and unless those price levels are breached, I don't expect S&P to make any significant move in either direction.
I have bullish bias currently (till 1st few days of Jan 2021). My final upside target for S&P500 is 3890+/-
I am not saying that this target will be achieved by 1st week of Jan 2021, but instead, I think this price level will serve as a strong resistance for this current bull run that began from Mar 2020 crash.
What do you think? Are you bullish or bearish heading into year end?
Leave a comment below should you have any questions.
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