Santa Claus Rally Needs a Sleigh- December 25th, 2020

The markets had a soft, flat week coming off options expiration. The Nasdaq closed down slightly, the $SPX down a ½%. Globally, most markets pulled back. Most commodities pulled back this week as well. Currencies were flat even though a UK-Eurozone trade deal got done. All in all, a week that consolidated all the moves up.

President Trump refused to sign the funding bill Congress and the Senate agreed to, so that is a hurdle for the market to work through. Other than the funding bill and rising COVID cases, most issues in front of the market have been dealt with. The Eurozone trade deal, two vaccine approvals and the successful distribution of millions of doses have all been shots of support for
the market.

Bitcoin continues to delight after breaking out to fresh highs two months ago. The gold setup I mentioned last week, has not been able to take flight so far, but I remain poised to join it, if it starts. The oil trade has confirmed the sell signal we saw setting up last week. While oil hardly pulled back (-0.5%), the XOP dropped 1.9%. Renewable energy continues to shine with the TAN ETF, the number one performer. Cyber security (BUG ETF) has come into focus after the major breach of government networks occurred.

The industrial metals (steel and copper) were down a smidge, but the rare earths and lithium had another strong week.

The Schnell Strength Indexes continue to weaken, with the two fastest indicators both below 40. I expect further weakness. I am not sure if we get a marginal Santa Claus rally or if we wait until early in the new year for the pullback. Oil held up well this week, and it continues to be a focus for me for 2021. The last two years have had oil up around $65 for a high and I continue to expect that for 2021. My presentation for StockCharts – Reflections 2020 – should be out next week, and I’ll provide a link in next weeks’
newsletter. The mule deer above appear to be looking for Santa’s sleigh.

Summary: I am now cautious as my strength indicators suggest. I’ve raised cash, but still hold some investments.

Let’s hit the charts. Click below to view the full PDF version.