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Santa Claus Rally ?

The S&P 500 has a good day
The S&P 500 has a good day
StockCharts.com

The Santa Claus rally period covers the last five trading days of the year and the first two trading days of the new year, so that period doesn't technically begin until Friday. Nonetheless, it is an appealing thought today as the markets bounce from the Grinch like price action of recent sessions.

The risk trade swith was flipped back on today. It brought a barrage of buying that drove stocks up to close at their best single session gain in the last month.Stocks settled the prior session in weak fashion by closing at their lowest levels of December, but the tone of trade improved overnight with help from you can probably guess who ....Europe.

Commodities also scored strong gains, giving the CRB Index a 2.0% gain today. It hasn't made such a strong move since October. Its climb was helped by the dollar's fall. And additionally the Financials were also leaders. The sector settled with a near 4% gain of its own

The combination of broad market strength and support for commodities made natural resource plays some of the session's best performers. Materials stocks and energy stocks collectively climbed close to 4%.

As for today’s opening gap and run up we can also note that we have seen this movie before. But for at least today prices did not just fade throughout the day in low volume after the mornings good advance. It was an important note that the market held and closed strong also.

The global macro economic situation continues to be the focus, but there is likely some year end tax strategies at work as well.

On the global construct Italy and Spain have seen yields on their 10 year notes drop 35 bps and 25 bps since Friday to 6.19% and 5.11%. This is a welcome relief from the over 7% spikes. Some market reports were attributing today's opening gap up to Spain's stronger than expected treasury bill auctions.

A surprising German business confidence reading for December is another factor supporting the morning’s market strength. It was not only better than expected but it was also better than November, rising to 107.2 from 106.6. according to Reuters.

It did not hurt either that the November Housing Starts here in the US was also better. Led by a 25.3% jump in multi family starts and a 2.3% increase in single family starts, housing starts rose 9.3% from October. This is the highest level of starts since October 2008. Building permits also jumped 5.7%.

With this number of good reports there is a good chance of an upward surprise for the market moving Leading Economic Indicators report for November on Thursday.

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