As we approach the end of the year, the market’s behavior suggests the much-discussed Santa Claus rally may already be unfolding — but in a less dramatic fashion than usual.
This year’s rally looks more like a slow drift upward than a sharp climb, consistent with the low-volatility environment dominating the market.
Take Thursday’s trading action as an example.
Following the release of the hotter-than-expected Producer Price Index report, the S&P 500 (SPY) dipped in premarket trading. However, the sell-off was short-lived. Within the first hour of trading, the market recovered and resumed its familiar pattern of low-range movement.
By the close, the day’s action was ultimately insignificant, with the SPY settling near the same level it held two days ago, right at the 8-day exponential moving average (EMA).
Zooming out, the broader trend also reflects a lack of significant movement.
Both the Consumer Price Index and PPI reports — traditionally major market movers — had little lasting impact. If you didn’t know those reports had been released, the charts wouldn’t give it away.
This muted reaction highlights how the market has become increasingly desensitized to Federal Reserve-related catalysts like inflation data.
Instead, we’re left with a market that’s likely to drift higher or chop sideways into the end of the year. While a Santa Claus rally typically suggests a noticeable year-end boost, this time, the gains will likely be incremental at best.
Barring any unforeseen Black Swan events, there’s no obvious catalyst on the horizon to drive a sharp upward move.
This doesn’t mean the drift higher can’t offer opportunities.
Pullbacks to key technical levels, like the 8-day EMA, remain healthy setups for continued upward movement. SPY targets around $610 or $615 are still achievable by year-end, provided the market maintains its current trajectory.
For traders, the takeaway is to manage expectations.
This isn’t the time to anticipate major breakouts or rapid gains. Instead, focus on steady, measured opportunities that align with the market’s slow pace. The absence of significant volatility may feel like watching paint dry, but it’s still a pattern that can deliver returns for patient investors.
Even in this subdued environment, the Santa Claus rally may still deliver — just not with the kind of excitement many might hope for.
Kane Shieh
Kane Shieh Trading
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