The S&P 500 shot higher after initially dropping on Wednesday as the Federal Reserve was not nearly as hawkish as some people priced in. With this being the case, it looks like traders are willing to jump in and chase that “Santa Claus rally” that everybody normally does this time year. The size of the candlestick is rather impressive, and it should also be noted that we closed towards the very top of it. This type of vicious turnaround typically gets quite a bit of follow-through, so I am anticipating that the S&P 500 will break out to an all-time high in the next session or two.
Any pullback at this point should be thought of as a potential buying opportunity, because the market has decidedly shown a lot of short covering, and longer-term investors continue to see plenty of value in this market, as although the Federal Reserve is going to be tapering its bond buyback purchases, it is going to be somewhat muted in its moves.
I believe that dips will continue to see the 50 day EMA as support, which is at the 4600 level roughly. I think at this point in time we are more likely to see 4800 than 4550. I still believe that we will eventually go looking towards the 5000 handle, but that is probably a story for January. Liquidity is going to be an issue as well, so that being said, the market is likely to see a lot of noisy behavior, but there are enough people out there willing to chase the market due to the fact that they have to present their returns to clients for the year. This is the “Santa Claus rally” that I mentioned earlier.
Furthermore, it has become increasingly obvious that when push comes to shove, the Federal Reserve will protect Wall Street over Main Street. In general, this is a market that I think cannot be shorted, but that is really nothing new considering just how attached to Wall Street that the Federal Reserve has been over the last several years. Simply put, this is a market that I will be looking for dips to take advantage of between now and the end of the year, when I fully anticipate we will see a reading above the 4800 level.
