Another good week but weak Santa rally start. Can stocks finish strong?
Wall Street rallied for an eighth straight week and continued to levitate higher into year-end. What’s even more impressive about this rally to 52-week highs is that it has come despite technical indicators screaming an overbought market. The one we track is the S & P 500 Short Range Oscillator , and it’s shown an overbought reading every day since Nov. 22. Overbought doesn’t exactly mean sell — much like oversold doesn’t always mean buy — but when the market moves to the extreme, we caution about chasing FOMO (fear of missing out) rallies and instead look to lighten up on a few stocks that have made a big run. This is part of our guiding principles: Bulls make money, bears make money, and hogs get slaughtered. Taking profits when a stock goes parabolic was one of the key themes from our December Monthly Meeting , which was held on Tuesday. This discipline was a big reason why we sold some Broadcom on Monday after surging 20% last week and took off a little Caterpillar on a run to a new high Wednesday. Check out our rapid-fire update on all 33 stocks in the portfolio and highlights from the Q & A section . One of the main reasons stocks have levitated higher into year-end is that the economic data continues to be supportive of a soft-landing narrative: inflation pressures easing with a resilient economy. Starting with housing, we got some mixed reads this week. Housing starts on Tuesday was much stronger than expected, and we liked seeing this because the housing market desperately needs more supply to help cool shelter prices, which has been one of the stickiest parts of inflation. Existing home sales on Wednesday were also better than expected, increasing in November when the consensus expected a slight decline. But there was a downside surprise Friday after new home sales missed estimates and fell to a one-year low. Chalk this up as a minor setback because housing is poised to reignite as mortgage rates decline. Elsewhere, the third estimate for third-quarter gross domestic product (GDP) was 4.9%, representing a slight downward revision from the prior 5.2% estimate. But the most important data point was Friday – the personal consumption expenditures (PCE) price index. This is the Federal Reserve’s favorite measure of inflation and it went their way. Headline PCE in November fell 0.1% month over month, a reading cooler than expectations for flat. Year over year, it rose 2.6%. Excluding food and energy prices, core PCE increased 0.1% month over month and 3.2% year over year. Both annualized numbers showed the Fed getting closer and closer to its 2% target. It may still be premature to talk about Fed interest cuts in the first quarter of next year, but data this week strengthened the soft landing argument and the case that central bankers are done raising rates. Here’s what’s on our radar for the holiday-shortened week ahead. The U.S. stock market is closed Monday on Christmas Day. (It’s also closed Jan. 1 on New Year’s Day.) 1. Can the rally continue next week? Friday marked the beginning of the so-called Santa Claus Rally period, which technically runs through the final five trading days of the year and continues into the first two days of the new year. The market usually sees more green than red during this stretch, with a success rate of nearly 80%, historically. Even in 2022’s bad December, Santa managed to squeeze out a gain of about 0.8%. A rally next week would close out 2023 for the S & P 500 at a 52-week high and maybe even a new record. It’s only about 1.5% away. The Dow this past Tuesday closed at a record high. The Nasdaq has work to do, still more than 7% off its record high. What a difference a year can make. 2. Will zero-day options create more volatility? As we found out Wednesday afternoon, the combination of zero-day options trading and a low liquidity environment has the potential to wreak havoc on the stock market. Trading volumes should be even lighter next week due to the holiday season, creating the optimal condition for an intraday selloff on no news to repeat itself. We wouldn’t sweat the program though. While zero-day option activity might amplify moves in either direction, it could also create opportunities to buy something we’ve been waiting to pull back. Remember a few months back, as zero-day options were gaining in popularity, we warned members to stay away from them. Here’s the full rundown of all the important domestic data in the week ahead: Monday, Dec. 25 U.S. stock market closed Tuesday, Dec. 26 8:30 a.m. ET: Chicago Fed National Activity Index 9 a.m. ET: FHFA House Price Index and S & P CoreLogic Case Shiller 10:30 a.m. ET: Dallas Fed Manufacturing Activity Wednesday, Dec. 27 10 a.m. ET: Richmond Fed Manufacturing Index 10:30 a.m. ET: Dallas Fed Services Activity Thursday, Dec. 28 8:30 a.m. ET: Initial jobless claims and Continuing Claims 8:30 a.m. ET: Advanced Goods Trade Balance, Wholesale Inventories, Retail Inventories 10 a.m. ET: Pending Home Sales Friday, Dec. 29 9:45 a.m. ET: Chicago PMI (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Wall Street and Broad Street signs are seen as The New York Stock Exchange (NYSE) and a Christmas tree are illuminated in New York City, United States on December 1, 2021.
Tayfun Coskun | Anadolu | Getty Images
Wall Street rallied for an eighth straight week and continued to levitate higher into year-end. What’s even more impressive about this rally to 52-week highs is that it has come despite technical indicators screaming an overbought market. The one we track is the S&P 500 Short Range Oscillator, and it’s shown an overbought reading every day since Nov. 22.
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