Weekly Summary: Santa Claus Rally is Knocking

Christmas is just outside the door and investors are waiting for Santa Claus to be generous. And they are going to be rewarded as a Santa rally is coming.

Omicron variant risks are waning. South Africa, which was the first country to report omicron variant cases, now sees mild infections related to it. Pfizer and Moderna are going to adjust their vaccines to the new variant and are delivering new medications to treat COVID-19, including the Omicron cases.

The United States has reported slightly better than previously GDP growth in the Q3 2021, and the Core PCE prices index fell to 4.6% in Q3 against 6.1% in the previous quarter. U.S. President Joe Biden and his over-the-pond closest ally Boris Johnson said no lockdowns, or any other restrictions are going to be set before Christmas. What more is needed to flag Santa to begin the rally in the last seven days of 2021? Statistically, in 77% of cases a Santa rally begins a week before the New Year and adds some 2-2.5% to the S&P 500 broad market index within the last week of the year and the next two trading days of the new year. This rally may even start today with a target of 4800-4850 points.

The technical picture does not support this idea, but neither is it against the rise of the S&P 500 index to 4730 points this week. Such small gains from the current 4710 points may not seem essential, but they would importantly justify Santa’s intentions to give the rally to 4800 points and above a go.

Brent crude prices hit the ceiling at $75.60 per barrel on Wednesday and ran out of steam. Declining omicron-variant risks, better than expected economic recovery, and falling oil inventories in the United States pushed prices to the limit. There is a possibility for Brent crude to move upwards to $76.59 per barrel. But that would likely create a dead cat bounce that should be used to open sell positions with the target of $74.00-74.50 per barrel of the Brent crude benchmark.

Gold prices have entered a sideways mode around $1800 per troy ounce. Though gold is likely to move to the downside at $1550-1650 per ounce, such a scenario has limited time to become a reality. If gold prices remain above $1750 per ounce until January 15 they may resume the upside movement towards $1830-1850 per ounce in January and February, and only after reaching it prices would roll back to $1550-1650 per ounce.

The EURUSD is trying to continue its upside momentum. But in order to do so it needs to close Thursday above 1.13900-1.14000. No trades should be considered before this level is breached. The GBPUSD, in contrary, has not only recovered its losses, but is moving to the upside. The closest targets for the Cable are at 1.36500-1.37500, and this rally is likely to be attended.