Is Today the Start of a Santa Claus Rally?

Posted On December 21, 2021 3:38 pm

Today’s midday bounce seems like a ‘bull trap’ as we head into the much-hyped ‘Santa Claus Rally ” which I delved into and suggested initiating bullish butterflies.   

In the past few days, I’ve made a few adjustments, including rolling down the butter strikes, adding a put diagonal and locking in a profit on The VIX strategy. 

Basically, Options360 is in good stead. Heading into the last 10 days of 2021, the Options360 Concierge Trading Service is up 70% with potential for gains rather than risk on the table. 

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The best part is that we’re in a no-stress position. 

So, when I read headlines like this one from Bloomberg, I chuckle; indicating that people are running around like chickens, and changing their opinions and direction, which makes me laugh.

“The failure to bounce is rattling those conditioned to anticipate it and comes as a litany of stressors weighs on bulls. Last week, when the S&P 500 fell on all but one day, investors poured $30 billion into exchange-traded funds focusing on U.S. equities, the largest inflow since March, according to data compiled by Bloomberg.  

To their chagrin, stocks started the new week on another sour note, with Senator Joe Manchin’s rejection of President Joe Biden’s tax-and-spending package adding to a long list of market worries from a hawkish Federal Reserve to the fast-spreading omicron variant.”

Stocks got too high. This summer, Powell missed his window to quit QE and make plans for rate hikes.  But instead, stuck to his mantra of “inflation is transitory”.  He may extricate himself from this rock in a hard place and maybe the perpetuation of a buy-the-dip will do his dirty work.  

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We’ve spoken numerous times about the dispersion between headline indices, still just 5% off all-time highs versus the mass destruction of MEME favorites, now down 50%-80% year-to-date. 

Indeed, large-cap stock dip buyers refused to give up last week. The SPDR S&P 500 ETF Trust ( SPY) attracted money for a fourth straight week, the longest inflows streak since September of 2020. The Invesco QQQ Trust (QQQ), the largest ETF tracking the Nasdaq 100, added about $5.5 billion of fresh money last week, the most in 15 months.

spy etf rush to buy chart

bloomberg cluster of losses

The Options360 Concierge Trading Service is still expecting a run higher into the end of the year.  But, I’m reducing exposure and locking in gains with each swing into my wheelhouse

My Option360 position will get paired down over the next 10 days, and if I don’t fall short, we should close out the year up some 70%.  I can live with that. 

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.