The Santa Claus Rally is in Full Swing as Dow Jones Gains 100 points

December 26, 2019
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“Expect the best. Prepare for the worst. Capitalize on what comes.”
― Zig Ziglar

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Boeing and China Lead Massive Dow Rally

Christmas came early this year...if you’ve been bullishly trading the Dow Jones Industrial Average. The venerable index gained a stunning 100 points in a single day of trading on Monday, further prolonging the ‘good year’ – at least where stocks are concerned. And that’s all thanks to the China trade news and Boeing’s new direction.

So what happened in China? Sin response to the ‘phase one’ of a U.S. trade deal, China has announced it will cut import tariffs on various products including, tech goods and oil. These cuts mean that U.S. companies (and especially tech companies) will once again be better positioned to compete in China – seen as a major growth market for US brands.

And Boeing? The airplane manufacturer lost a lot of faces – and share value – when their new 737 Max plane was involved in several fatal crashes. And once the U.S. Federal Aviation Administration grounded the planes, along with analogous bodies in other countries, the writing was on the wall. But Boeing seems eager to move forward, and sacking their old CEO was a signal investors took positively.

Was that enough to cause a 100 point rally? Investors have proven themselves to be sensitive to even the slightest rumors coming from China. But another major reason is the now-traditional Santa Claus Rally.

Wut We Think: It’s a good time to end the year-long on equities. While gains at other indexes have been more modest – a 0.1% gain for the S&P and 0.2% for NASDAQ – equities are all set to ride into the New Year, leading to heaps of presents under the tree. And traders should be just as happy – while 2020 is still an unknown, the last week of 2019 promises to bring further gifts for stock market bulls.

 

Euro Quiets Down as Markets Go Quiet Near the End of the Year

The Euro is almost smacked in the middle of its support and resistance...and the current thin trading volumes are likely to keep the Euro fair at least until the end of the year. But the improving global financial atmosphere is expected to give the euro a boost as we head into 2020.

Why are trading volumes so thin? It’s expected, especially since most traders are packing up and heading home for the holidays. Also, Forex markets depend on trading volume a lot more than equities to move prices, so thinner volumes directly translate to stability. The euro has also avoided the worst of the US-China trade war, giving it another leg up.

So 2020 will see increasing volumes? Once traders get back to their desks, yes. And the Euro is expected to rally further, especially considering a new phase of Brexit negotiations and the general improvement of global economies. 

Is there anything that can knock it down? Volumes are unlikely to be lower than now. However,  there could still be some hiccups for the euro in 2020 – January is historically a tough month for the euro, and continuing economic turmoil in France could knock the optimism right out.

Wut We Think: Generally, it’s an excellent time to be bullish on the euro and bearish on the pound – there’s no evidence, after all, to assume that the new Brexit negotiations by the UK Johnson government will end any better than the previous rounds. Add in positive statements from the European Central Bank and improving manufacturing sentiment in Germany, and Europe seems like it's going to be in a good place in 2020 – though possibly minus one member.

 

Trading Spotlight: Santa Claus Rally

The holidays are a time of optimism, and the end of a decade, rationally or irrationally, tends to fill people with cheer and holiday spirit. Traders are just as susceptible to this phenomenon As a result, markets generally tend to rise during the holiday period, along with thinner trading volumes in general – meaning that small moves have bigger effects.

Santa Claus Rally: The Santa Claus Rally is the name given to the phenomenon of higher stock prices during the last weeks of the year and a few days after the New Year. Tax reasons, general optimism, and holiday bonuses typically play a large role in this phenomenon. Since 1969, stock markets have posted, 75.5% of the time, an average of 1.4% gains over the holiday period.

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