Markets are bouncing after being whipped around this week by geopolitical headlines, pinging Level-to-Level.
The bias remains down until we engage and close above the Weekly Magnets, dispelling the Sell Rallies Modus Operandi.
In my weekend note, we looked at where strength lies and mapped a potential for an intermediate-term breakout, which still has a high probability of occurring. Regardless of the direction, Act II will be met with explosive volatility and a continuation of opportunity for nimble traders.
Since we know that seasonality for December is positive 78% of the time over the prior 9 years and the first two weeks of the month are often met with strategic selling, let's look for potential fast reversal bounces if we are to get the hoped for Santa Claus Rally. Getting our bearings around December Seasonality, the trailing 10-year high return is 6.5% and the trailing 10-year average is 1.4%.
As we evaluated over the weekend, the winning sectors were in defensive groups such as Utilities and REITS. It is likely, if a bounce is going to occur, that those groups and underlying securities that have been making 52-Week Highs will revert and those groups making 52-Week Lows will provide the most outperformance in any rally. It may be a simple mean reversion trade.
On first-pass, apart from the usual FAANMG suspects for a formidable rally, Banks, Energy, and Retail standout as bounce candidates.
Viable candidates are in Banks and TMT.
Remaining Known Potential Catalysts for the Week.
All the best,