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Traditionally, a Santa Claus rally refers to gains in the stock market happening in December, specifically over the last five days of the month into the first few days of the new year. Since 1950, the average gain over that period, in 70% of those Decembers, was 1.3%.
But this December might be different. We could see Santa come early and re-gift markets throughout the month into the new year.
We're at a crossroads of three events that all have the potential to push the market higher, starting literally today. If even one of those things happens, we'll get a bump.
If all three happen? Money could come pouring in.
The odds are pretty good, and this is an excellent opportunity for you to get in on what could be one of the best profit plays this year.
Let me tell you what to look for and exactly what to do.
These Three Events Will Kick Off the Santa Claus Rally
The first sign is a Personal Consumption Expenditure (aka PCE) print lower than consensus expectation. The Fed's favored measure of inflation, the PCE number, drops at 8:30 am today. If that's a print the markets like, they should start rallying immediately.
Next, watch for whether the S&P 500 can get to and rise above short-term resistance at 4050, the S&P's 200-day moving average. If it manages that hurdle, the next and all-important resistance level is at 4100. That's where the index meets its bear market down-trending channel marker. Each rally off market lows this year died right at that level.
Getting above 4100 this time would be a surefire positive for investors hoping for something more than a bear market rally or dead cat bounce.
Then, on December 13, 2022, the day before the Fed's following FOMC rate announcement on the 14th, we get to see what November's CPI (Consumer Price Index) has to say about inflation. If CPI comes in below trend, markets will rally.
If the SPX rallies above 4100 on that news, we're going higher. If the S&P is already above 4100 and CPI comes in well below consensus expectations, we're going a good bit higher. And we'd only be in the middle of the month.
If inflation looks like its abating, and the Fed raises only 50 basis points at their December 14, 2022 meeting, and stocks are already moving up, at or above resistance levels, money should come pouring in off the sidelines.
That's a lot to hope for, I know, but entirely possible and more likely than markets crumbling just as we appear to be seeing signs of possibly peak inflation, as well as the beginning of the end of the Fed's big rate hikes.
And guess what we could see on the heels of an incipient rally? A lot of FOMO, or fear of missing out.
An early rally in December could easily see the S&P pop by 3-5%. That would leave a lot of money manag…
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.