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Is a Santa Claus Rally Coming This Year?

Broad indexes are down double-digit percentages this year, will a Santa Claus rally turn around the end of 2022?

Santa Claus Rally

With just three weeks left before the close of 2022, and the S&P 500 lower by 17% on the year, and the Nasdaq down a whopping 30%, it feels like only a Santa Claus Rally could save this year. Will it happen? It’s truly anyone’s guess. But here are my thoughts.

If I wanted to bet against a Santa Claus rally (which seems un-American!) I would point to a couple items, including:

While December tends to be a strong month for stocks, interestingly, the performance for the S&P 500 in December historically is negative when the index is down 10-15% or more headed into the month, as seen below:


Also, on Monday, and then again on Wednesday of this week, options traders bet heavily against the financials and housing sector, via these put buys:


Monday –

Buyer of 10,000 Blackstone (BX) February 70 Puts for $2.70 – Stock at 83

Buyer of 4,000 Blackstone (BX) March 80/65 Bear Put Spread for $4.40 – Stock at 83.5

Buyer of 10,000 Blackstone (BX) January 70/60 Bear Put Spread for $1.18 – Stock at 81.5

Buyer of 5,500 Morgan Stanley (MS) February 80 Puts for $1.73 – Stock at 90

Buyer of 6,500 Homebuilder ETF (XHB) September 60 Puts for $6.20 – Stock at 61

Buyer of 7,000 D.R. Horton (DHI) February 75/60 Bear Put Spread for $1.80 – Stock at 85

Wednesday –

Buyer of 5,000 Blackstone (BX) March 75 Puts for $7 – Stock at 78 (rolled down from March 80 puts)

Buyer of 10,000 Blackstone (BX) February 45 Puts for $0.45 – Stock at 79

Buyer of 3,000 Blackstone (BX) February 50 Puts for $0.80 – Stock at 78.5

Buyer of 8,000 Wells Fargo (WFC) January 42.5 Puts (exp. 2025) for $6.65 – Stock at 43

Buyer of 14,000 Bank of America (BAC) January 35 Puts (exp. 2025) for $6.35 – Stock at 33

I’m an “old school” trader, and when the financial and housing stocks and sectors are weak, my radar goes off that it’s time to get worried/defensive.

And given the items above, if I wanted to get bearish exposure to the market, I might look at this put buy:

Buy to Open the S&P 500 ETF (SPY) April 390 Put for $20.

Ok, enough with the bearishness …

There are some positives I’m seeing in the market as well, including:

Interestingly, while the “big boys” such as Apple (AAPL), Microsoft (MSFT), and other leading tech stocks have been weak, more and more under-the-radar stocks have been holding up and even advancing. For example:

Cabot Options Trader subscribers own positions in Starbucks (SBUX) and Las Vegas Sands (LVS), both of which are breaking out, and I have a long list of strong stock candidates to buy, should the market continue to strengthen, including:

TMUS, HOG, CAT, SLB, GILD, AXON, DXCM, ROST, and many more.

Also, as @ryandetrick on Twitter noted, “S&P 500 gains of >5% back-to-back months. This type of persistent strength isn’t the sign of a bear market rally, but likely the start of a new bull. Previous 13 times it happened? Higher a year later every time, and up 22.2% on average”


And one more graph from @ryandetrick that shows that the majority of December gains historically come from performance December 15th through the end of the year, as seen below:


With this bullishness in mind, if you wanted to play a bullish finish to 2022, and into 2023, you could look at this call buy:

Buy to Open the SPY April 400 Call for $21.

Stepping back, I could see a bearish OR bullish close to the year play out … it really is a toss-up.

However, I’m optimistic that the bulls will again take control in the weeks to come, and grant my Christmas wish for an end-of-the-year Santa Claus rally!

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Jacob Mintz is a professional options trader and editor of Cabot Options Trader. Using his proprietary options scans, Jacob creates and manages positions in equities based on unusual option activity and risk/reward.