Will there be a Santa rally this year?
After a weak start to the last quarter of 2019, the bulls have returned, encouraged perhaps by the monetary easing into the end of the year.
Last Friday, the US Federal Reserve surprised the market with a new action. It will commence buying $60 billion worth Treasury bills for the next 6-9 months to ease funding shortages. The Fed hoped for a ‘shock and awe’ policy and it worked.
Stock markets, unsurprisingly, paused their declines and rebounded back into their near-term highs. The S&P 500 ETF (SPY), shown below, gapped up above the 50-day moving average. The rally extended further this week into the 300 resistance.
Hopes of a Brexit deal jolted the bulls into action
In the UK, all eyes are on Number 10 today. After a week of frantic negotiations, all traders are waiting to see if a deal is possible before the EU summit this week. Specifically, the PM needs to persuade other parties to back the deal, including the NI DUP, some opposition MPs, and a significant number of ex-Tory MPs.
However, the bulls did not wait for the result. They are running ahead. Sterling soared from its recent lows. In the equity space, the mid-cap FTSE 250 (MIDD) has broken into multi-week highs (see Featured Chart).
This breakout is significant as this ETF was trapped in a sideways range for much of this year. The rally above 1,900p indicates that the equilibrium between supply and demand was broken, in favour of the bulls. The next round number target is at 2,000p.
In Europe, the DAX and CAC indices are too advancing on hopes of a Brexit deal.
At 5,700, the French CAC Index closed at its highest level in 24 months. If sustained, this could be an upside breakout with intermediate bullish implications (see below).
Overall, stock markets have turned more ‘hopeful’ of late – and assume that some of the political problems are subsiding.
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Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.