The short, low-volume, Thanksgiving Week is over. Now to see where the market is headed. Santa Claus Rally? Or bear market coal?

If you’re superstitious these are interesting days. The data suggests a recession is coming. However, popular wisdom says the markets will do whatever they can to prove the greatest number of people wrong at any given time. And recession does not directly correlate with a down market.

So, is there a recession? Or has the market bottomed?

Your guess is a good as mine. But consider the fact the Fed has been more transparent in the past decade than it has been in probably the last 50 years. That doesn’t mean it’s right. But it could mean what the market sees is closer to what really is than history has proved out.

When looking at the markets, a few things are starting to filter in:

1) It’s possible this thing could go higher.  A short squeeze could drive things up. In such a case, watch for the S&P 500 to test the values we saw at the start of the Ukraine war (4114-4294; and yes, that was a 1-day range, but the bottom of that range is the likely area of concern).

2) It’s possible things could reverse. The VIX is close to dipping below 20. With the exception of the first two weeks of 2022, every time the VIX has dropped below 20 this year the markets have declined. Every. Time. (Of course, past performance is no guarantee of future results. But we can’t help ourselves. We notice these things.)

3) The S&P 500 has rallied for the past 6 weeks and now sits above the year-to-date linear regression channel. Again, every time this has happened in 2022, the market has shortly thereafter declined.

4) The S&P 500 has rallied for nearly 15% since October 15th. It’s been seven weeks.

5) There are plenty of newsworthy events that could negatively affect the markets. There is still a war. There are still potential interest rate hikes on the horizon. There are potential diesel shortages. There are riots in China. These are just to name a few.

So, the recent rally is a conundrum. The data is hard to peg. What future expectations are being priced into this market? It’s hard to tell. But it may not be market or economic data at all. Sometimes markets move simply because it’s the direction the herd is traveling. In which case, as the old saying goes, the trend is your friend.

So here we sit. The data suggests this thing is likely to fall. But the trend says it’s still headed higher. Thanksgiving week really doesn’t give you enough to work with. Traders are on vacation and it’s mostly computers and a handful of folks driving the markets.

This week, we should see a big volume push as institutions begin positioning for the end of Q4, and window dressing (trying to make their funds look as good as possible for 2022 data publishing so they can hit bonuses for year-end and position to sell more in 2023 based on how good their portfolios looked for the calendar year).


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