My Wish List For Santa

We’ve all done it before.

Found the gifts before the holidays as a kid and ruined the surprise for ourselves.

For me, it was fourth grade.

I was obsessed with Yu-Gi-Oh cards, and curiosity got the better of me.

While my mom was outside ripping a cigarette (she still smokes those cowboy killers—Mom, if you’re reading this, I LOVE YOU, but seriously, quit smoking), I crept into my parents’ closet. Boom—there they were. I was pumped. But that excitement quickly faded when I realized I had spoiled the joy of receiving the gift as a surprise.

That childlike excitement doesn’t fade, as we see a similar pattern in the market. People let excitement get the best of them and attempt to predict moves without waiting for confirmation. And, much like opening gifts early, it feels great for a moment but often turns into regret.

Seasonality is a great tool for the market. It shows us, backed by data, that history may not repeat but often rhymes. This creates a useful 'rule of thumb' for what tends to happen during certain times of the year.

This time of year, we often hear about what is referred to as the Santa Claus Rally.

I won’t dive into the details, but you can check out the excellent work of technicians Ryan Detrick and Jeffrey Hirsch here. What I want to focus on is not opening the gift early.

The market took a jab straight to the face this week, dropping over 2%. However, it managed to rally on Friday, bringing hopes of this seasonally strong period.

But I’m not opening the gifts early.

Here are the 2 Things On My Wishlist Before Opening the Seasonality Gift from Santa:

1. Friends Joining the Party

2. Getting Above Tactical Levels

I’ve written about this before, but we often need to be reminded more than we need to be taught. The S&P 500 is what many consider “The Stock Market,” but with its incredibly top-heavy construction, it doesn’t do a great job of representing “The Market of Stocks.”

For me, a healthy bull market has broad participation, and currently, the “Market of Stocks” is in need of some love.

Using a simple percentage of stocks above a 20-day moving average, you can see the damage that’s been done to the “Market of Stocks.” For me to participate in this POTENTIAL Santa Claus Rally, I would like to see this metric get back above 30%.

Yes, I may be a little late to the rally, but I’d enjoy the party a lot more with some friends.

For those who don’t care about their friends (breadth), you do have pretty well defined risk against the $585 area.

The Santa Claus Rally lasts only 7 days, making it a very tactical event—"tactical" simply being a fancy word for short term. The beauty of technical analysis lies in its fractal nature, allowing us to align charts for a shorter-term view of this rally.

Here’s how I’m approaching it with the S&P 500: I’m using 65-minute candles, which the market produces 6 of in a day, and overlaying a 30-period exponential moving average (EMA). This essentially equates to a 5-day EMA.

Getting long tactically below a declining 5-day EMA is not something I like to do. First principles thinking applies here: price has to stop going down before it can go up. I prefer to buy strength after a pullback, not during it. That’s why I want to see the S&P 500 sustain a couple of closes above this 30-period EMA before joining the party.

With the POTENTIAL Santa Claus Rally approaching, it’s easy to get excited and open the gifts early. But, just like in childhood, waiting for the big surprise is often worth it.

If we can get the “Market of Stocks” to join the party and tactical price momentum back, this should be one hell of a party.

I just wanted to take a moment to genuinely thank you all for your love and support.

Subscribe below as new posts drop every Saturday, with even more exciting content coming in 2025.

Cheers,

Larry Thompson, CMT CPA

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