The Santa Claus rally refers to the bullish seasonal period that takes place over the last seven days of the trading year and the first five days of the new year. That seasonality is even more powerful in pre-election years and when the stock market is up more than 20% going into the last trading week of the year. Both conditions apply this year.
Another bullish dynamic is the number of fund managers underperforming the market. Given this confluence of factors, one group of stocks to consider getting long for a trade are those that have underperformed for most of the year and are emerging from consolidations and sport a high short interest.
Stocks with these characteristics are attractive because they won't be as extended as other stocks that have been strong all year, thus there's less downside risk. Additionally, higher short interest provides fuel for more upside.
U.S. Steel
19% of U.S. Steel's
However, there is increasing evidence of a cyclical upturn in the business cycle. Some reasons to believe this is the case are manufacturing data showing low inventories and increasing new orders, the 'Phase 1' agreement between the U.S. and China, and strength in forward-looking measures like stock prices.
The stock is hitting a six-month high and breaking out on a shorter-term timeframe. Traders should look to get long with a stop loss between $11 and $12.5 depending on one's risk tolerance.
Scorpion Tankers
Scorpion Tankers
Martin Marietta Materials
Martin Marietta Materials
Given Federal Reserve Chairman Jerome Powell's dovish pivot on inflation, downward pressure on rates should resume. Housing should outperform once again, and Martin Marietta's breakout should continue into the next year.