Dear Santa, are you real?
Charts I'm monitoring this week...
We’re at an interesting point in time right now.
In Elf, Santa’s sleigh only flies when enough people believe. No belief, no lift-off. Markets aren’t all that different at this time of year. The idea of a “Santa Rally” gets plenty of airtime, but belief alone isn’t enough to move price.
Whilst many of the stocks highlighted in last week’s newsletter proved to be winners (most notably SPOT, CCJ and—oh my word—LULU), a number of tickers remain pinned at or below key pivots.
What’s interesting to me is that of all the names highlighted last week, it’s the value names that broke above key levels and climbed higher, whilst the more speculative names (MSTR, RIOT and CRWV) remained either stuck in a range or down big.
That tells us something important. Not everyone is singing loud enough to power the sleigh.
Whether this divergence continues over the coming weeks or months is unknown, but if we’re in the business of trading what’s in front of us — not what we hope for — the play feels clear: stay with the value names that are already flying, and be patient with the riskier assets until they show genuine lift-off of their own.
Why Bitcoin Matters
Thankfully, gauging ‘risk’ sentiment isn’t as complicated as most traders make out.
In my view, one of the best measures we have can be found on the Bitcoin chart - when this thing moves higher, it signals risk appetite is growing. When it falls, the inverse tends to be true.
Don’t believe me? Take a look at Bitcoin’s price action over the last couple of months and compare it to names like COIN, MSTR and IREN - all are way below prior highs and suffering painful corrections.
But that’s not to say I’m ruling out a comeback.
Looking at Bitcoin’s price action over the last few weeks, a clear ascending triangle has formed - with buyers stepping in at higher levels of support whilst sellers remain in control around the $94k mark.
Should this pattern resolve higher, believing in the ‘Santa Rally’ becomes much easier - opening the door for some short term swings.
Should it resolve lower, then I’ll definitely be hitting the brakes on any speculative names - whether crypto or ai adjacent - over the festive period.
SPX Chopfest Could Continue
The same ‘wait and see’ approach rings true on SPX too - although this one definitely looks more bullish than Bitcoin on the daily timeframe, having notched another ATH (on a closing basis) last week.
But rather than getting bulled up on the ‘hope’ of Santa showing his face, I’m happy to wait and catch the meat of the move that likely follows a clean retest of the ATH VWAP ~6750 or a solid move above 6900 that sticks.
As the chart above shows, SPX has been super choppy of late - and with a raft of economic data and central bank announcements scheduled this week, my gut is telling me that more chop remains likely in the short term.
Relative Strength: Small Caps and Equal Weight
Speaking of fat pitches, I’m filing November’s sell off on small caps under ‘the one that got away’. Just look at the strength this thing has shown since retracing down to the 0.786 level.
Note -small caps making new highs is not something you typically see in bear markets, in fact it’s quite the opposite.
It’s a similar story for equal weighted indices too - with RSP in particular showing incredible strength to reach new highs during last week’s session.
Stepping back, this strength matters. It tells us that while the former high-flyers have cooled, the broader market is quietly doing the heavy lifting.
Plenty of stocks are still winning on a relative basis, which supports the idea that this isn’t a market rolling over just yet, it’s simply rotating.
If SPX and equal-weight benchmarks can push to fresh highs without leadership from names like NVDA, META and MSFT, the obvious question is what happens if — or when — those leaders re-engage?
That brings us back to risk. If ‘risk-on’ starts to show a bit more conviction in the days and weeks ahead, the path of least resistance remains higher — and the odds increase that Santa makes an appearance into year end.
Sticking to the Plan
If we’re going to get a genuine Santa rally in 2025, there are a few boxes that — in my view — need ticking.
Bitcoin needs to break above $94k, shifting sentiment back towards ‘riskier’ plays across crypto and speculative ai
Market leaders needs to show some guts. MSFT, META and NVDA are just three names I’m watching for signs of recovery
Equal weighted indices and small caps need to continue their strong showing, holding above prior highs
That’s the checklist I’m working with into the week ahead and likely through year-end. None of this is a given — and if the inverse starts to play out, the Santa narrative quickly loses its shine.
But if the signals do align, even Buddy the Elf would struggle to contain his excitement.
Best,
Al
Disclaimer: This content is for informational and educational purposes only and should not be considered financial advice.