Why Next 7 Days Matter

Next 7 days are crucial for the stock markets, especially this year.

Historically Bullish 

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. 

So why 2020 is a special year?

  • S&P500 is at all time high levels.
  • Vaccine discovery, big stimulus money, almost all the catalysts are priced in
  • Markets are priced for perfect outcome and assumes that stimulus approval is a done deal but it might not be.
  • I have developed 4 prop indicators and when all 4 signals are pointing to a bearish move, I usually get out of most bullish positions. As of now, I have 3 Bearish signals and 1 Bullish. However, this also happens to be one of the most Bullish trading window in entire calendar year.

Market Valuation

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.

Technical Price Levels

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.

Trade carefully.

 

Happy Trading,

Manoj Kumar

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