Weekly Market Review & Analysis For December 20, 2021

The S&P 500 market gained 2.3 percent over Christmas week when buy-the-dip attempts were successful. The small-cap Russell 2000 index with +3.1 percent and the Nasdaq Composite with +3.2 percent were two increasing over three percent, and The Dow Jones Industrial Average rose 1.7 percent.

The market concluded an extended three-day skid with an upsurge of three days, which witnessed the S&P 500 using our Outer Index Dip 4555 as a launching pad. All eleven sectors ended higher, led by consumer discretionary (+3.8 percent) and the information technology (+3.3 percent) sectors, which saw more than 3.0 percentage gains. The utilities sector grew just 0.2 percent.

No one event spurred the price rise, and it was more the belief that the market was being overvalued in the short term and was due for a hop. Furthermore, investors have shown willingness to purchase the equities when the benchmark index breaches Outer Index Dip.

Other factors that helped were less concern about the Omicron variant, despite positive research and vaccine results and hope for the possibility that Sen. Manchin (D-WV) can join the Build Back Better Act; after initially rescinding it, higher-than-expected earnings figures for Micron (MU) and Nike (NKE) as well as the positive sentiment.

However, markets brushed aside worries regarding the Fed possibly making an error in its policy in the coming year. It's worth noting that, even if the Fed raises interest rate three times, the environment is likely to remain comfortable.

At a consumer price index (CPI) at +6.8 percent, the U.S. Treasury's yields negative 5.4 percent when it ought to be yielding positive two percent, which is a nominal 8.5 to 9 percent. The market is caught on the Covid worrying treadmill-induced recession with the assumption that inflation is continuing to be "transient." 

The correction of this mispricing is likely to be very violent. What is the best way to deal with this market disconnection? It is to be seen.

Market elsewhere

The U.S. Treasury market slowed down in the wake of the substantial price movement in the equity market and some positive economic reports. The Two-year note yield climbed five basis points to close at 0.69 percent, while the Ten-year yield increased nine basis points, or 1.49 percent, thereby steepening the curve. 

The spot gold price rose $12 for the week closing at $1,810 per ounce, silver gained 62 cents for the same period, while the Dollar Index, which is a measure between U.S. Dollar value to six major currencies of the world, lost 0.61, closing at 96.06.

In addition, the market rallied just before the seasonally favorable Santa rally period, which is defined as the final five trading days of this year and the first two beginning of the year ahead. There's no guarantee that the following seven sessions will be filled with positive gains.

As for Bitcoin, Cathie Wood, founder and CEO of Ark Investment Management believes that bitcoin is likely to be the most disruptive and 'innovative' technological advancement of the 21st century. She predicts it will rise to $560,000, which gives investors nearly 1000% return - Ditto it is, but it's not impossible.

By the way, last year during Christmas, the Bitcoin Bulls scared away the Grinch. Santa brought with him the gift of rising prices (the good kind), and during Christmas dinner, you could brag and show everyone your phone. We can't promise this year's Christmas will net the same result, but it does look promising.

Merry Christmas and Happy New Year!

As another year comes to an end, I would like to wish all of Trade Selecter readers worldwide a very Happy Christmas and a prosperous New Year.

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