As we inch closer to the end of the year, the market continues to show signs of a positive bias amid the chop.
With fund managers largely focused on wrapping up a successful 2024, there’s a strong chance we’ll see the seasonal Santa Claus rally push the S&P 500 (SPY) higher — possibly even reaching $615 before the calendar flips to January (SPY opened around $608 this morning).
This optimism is underpinned by a few key factors.
First, portfolio managers are still putting the last of their cash to work, a typical year-end move designed to polish performance and secure those coveted bonus checks. While the heavy lifting is mostly done, what remains is the effort to maintain or slightly enhance gains, which could keep the market drifting upward in the coming weeks.
However, it’s important to temper expectations. While the steady climb we’ve seen recently could persist, it’s unlikely to turn into a dramatic melt-up. Barring any major surprises from the Federal Reserve — such as an aggressive 50-basis-point rate cut — the current low-volatility environment is more likely to produce a slow, steady upward drift rather than explosive gains.
What makes this year particularly intriguing is the low trading volume that has lingered post-Thanksgiving. The holiday week brought a typical lull, and while we saw a minor volume pickup midweek, institutions are clearly still in vacation mode.
This subdued activity is expected to persist, with only a brief window of potential action before the holiday season kicks back into gear later this month.
The big question is whether this positive bias can sustain itself without fresh catalysts. The market’s slow drift is being supported by a general lack of volatility, with the VIX hovering at depressed levels (just above 13 this morning and 20 means average volatility).
As long as this calm persists, fund managers can focus on protecting their positions rather than aggressively chasing new opportunities.
Looking ahead, any pullback to the 20-day exponential moving average (EMA20) could bring a slight uptick in volatility. But if the market simply consolidates near the 8-day EMA and continues its steady climb, we’re unlikely to see significant action in the VIX before year-end.
For traders, this environment calls for patience and a focus on strength.
The Santa Claus rally has a way of rewarding those who align with the market’s natural bullish tilt during this season. While it may not be a meteoric rise, the path forward appears clear — a slow, controlled ascent into the new year, driven by fund managers doing what they do best: making their portfolios look as good as possible when it counts the most.
If you’re looking for fireworks, you might be disappointed. But if you’re tuned into the market’s subtle rhythms, there’s plenty of opportunity to end the year on a strong note.
Kane Shieh
Kane Shieh Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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