• A rally in the last week of trading has history on its side
• Investors appeared to accept hawkish Fed and Omicron spreads last week, but that could change in the new year

Despite the Fed’s hawkish tilt in December and the rapid and continued spread of the latest COVID variant, Omicron, perhaps the most transmissible strain of the virus to date, the top four US benchmarks – the,, and – increased at the end of the shortened trade holiday on Thursday. Plus, each index gained for the week, before Friday’s Christmas break, with the S&P 500 setting a new record to boot.

Although markets expect the US Federal Reserve’s measures to continue to tighten in 2022, with interest rate hikes coming, investors remain willing to increase the risk. This bodes well for the possibility of a late Santa Claus Rally until the end of 2021 and possibly beyond.

Calm before or after the storm?

It is surprising that one of the most hawkish in years seems to have received so little hindsight or fanfare from the markets. For years, we have wondered how the central bank is going to extricate itself from the deep stimulus hole it sank into. Indeed, prior to that, any discussion of a withdrawal from easing sparked tantrums in the stock markets. Yet now, when it’s finally official, there’s barely been a glance from investors.

We think this is terribly strange. It could be that the recent upward moves are the result of low volume with institutional traders already on vacation and just a range of actively participating retail investors. It could be the same scenario over the coming week.

Which makes us wonder: was the recent market turmoil the storm before the calm, or will the coming week be the calm before the storm? We can’t find out, of course, but in our opinion, there’s yet another shoe about to drop.

Additionally, news about the latest variant of the virus appears to be fading. Yet the alarming rate of contagion should be, well, alarming. Even though the percentage of severe cases of Omicron is significantly lower than that of the Delta strain, the much higher infection rate could increase the total number of severe cases anyway.

The new variant could be a leading indicator of another scenario some health officials have warned against – a virus that continues to produce new variants without ever being fully contained. Still, the FDA approval of Pfizer (NYSE 🙂 and Merck (NYSE 🙂 COVID oral therapies gives investors hope.

As for the potential for a stock rally in the week ahead: Between Christmas and the New Years holidays since 1928, the S&P 500 has risen almost 79% of the time, gaining an average of around 1.7%.

Additionally, the overall benchmark is around + 25% year-to-date, and Santa gatherings have tended to be more assertive with momentum as the tailwind. This configuration can also be identified on the SPX data sheet.

The S&P has developed an H&S continuation model. MACD and RSI signal that price and momentum are poised for a breakout at record highs.

One notable fundamental theme that could give stocks a push is a breakthrough on US President Joe Biden’s $ 1.75 trillion social and climate spending bill. Shares plunged when West Virginia Senator Joe Manchin withdrew his support at the last minute, leaving the bill short of a vote needed for passage.

While we often look to Treasuries for clues regarding risk appetite and the economy, yields have not sent sufficiently clear signals from our perspective.

The rates, including for the note, have just risen above the 200 DMA, which may have played the role of cleavage towards a top (H&S, double top?). However, we’re not quite ready to call this a failed top just yet, as rates have found resistance through what appears to be an emerging symmetrical triangle.

It tends to be a continuation pattern and coming from the top it increases the chances of a breakout. If this happens, it means investors are shifting their capital to safe havens, a negative omen for stocks.

The tendency to be positively correlated with rates. The USD is also awaiting resolution amid the disruption of the uptrend.

Daily Dollar

At first we thought that a shorter term pennant might turn into an ascending triangle. This would be considered bullish, indicating that the buyers are ready to raise the bet. At the same time, sellers are less enthusiastic, only selling at the same high levels.

Note that bulls use this pattern as a springboard to increase the greenback’s momentum, sending it into a steeper bullish channel.

, like Treasury yields, played tricks on us. Both, after all, are considered safe havens. But conditions have changed, as have our take on the precious metal.

Now it looks like market forces are gearing up to push the yellow metal up. Gold can develop an H&S continuation pattern (or symmetrical triangle, with the same implications). Penetration of the $ 1,900 level will suggest a challenge to the August 2020 record.

changed little over the weekend, after hitting its highest price since December 3 on Thursday. There has been a lot of talk lately about “buying the drop”. However, it’s worth pointing out that while the cryptocurrency’s price is lower than its November record, the value of the first digital token has more than doubled in 12 months.

In this sense, its price is now exorbitant. Additionally, Bitcoin’s technical picture is alarming.

BTCUSD Weekly

BTC / USD has developed an upward wedge since the April peak. This model contains the dashed hopes of buyers after giving all they had but failed to keep up the momentum.

The price does not increase. It is now between the peaks of April and November. This model could also be the setup of a double top, whose neckline is at the $ 29,000 level. If that happens, we’re looking at an implied goal of close to $ 0.

climbed for the third day in a row heading into the weekend, its longest winning streak since December 8 and hit its highest point in a month. Technically, however, we fear the rally may not last.

Weekly oil

The bullish movement has stopped below the broken up trendline since April 27 and may have developed an ascending H&S top.

The coming week

All times shown are EST

Monday

Markets closed for Christmas in Australia, Canada, UK and other locations.

Tuesday

10:00 am: United States – : the previous reading was 109.5.

Wednesday

10:00 am: United States – : is expected to drop to 0.6% from 7.5%.

10:30 am: United States – : last week’s print showed a decline of -4.715 million barrels.

Thusday

8:30 am: United States – : should remain stable at 205K.

8:00 p.m .: China – : should decline to 49.6 from 50.1

Friday

the new year’s holidays; closed markets in Brazil, Japan, Singapore, Russia, Germany, Switzerland and UK, among others.