Happy Tuesday, traders…
Jeff here.
It’s that time of the year, one full trading week left before the Christmas break, and the Santa Claus Rally is steaming ahead.
Don’t say I didn’t warn you. The relentless melt-up continues…
If you missed the sleigh ride to the moon, and you’re sitting on the sidelines waiting for a clear pullback, this market is making it tough.
Let’s talk about what I’m calling the “Ponzi stocks” — the super overextended ones, riding the wave of crypto hype.
Think Robinhood Markets Inc. (NASDAQ: HOOD), MicroStrategy Inc. (NASDAQ: MSTR), Marathon Digital Holdings Inc. (NASDAQ: MARA), and just about anything remotely tied to the crypto space.
MSTR, with its multi-billion-dollar Bitcoin (BTC) exposure, is trading like a proxy for crypto itself. And Robinhood is riding the broader crypto-trading wave as retail traders come back to life.
This is exactly what I predicted right after Trump was re-elected.
It’s a non-stop bid for these names right now, along with quantum computing names, software, and (literal) rocketship stocks.
This is partly seasonal momentum, and partly a speculative frenzy fueled by a lack of any serious selling pressure.
With that in mind, let’s get to my Tuesday Market Outlook for the last full trading week of the year…
The NASDAQ Rebalance Drama
This week, we’ve got the NASDAQ rebalancing.
Notable changes include:
- MSTR getting added.
- Super Micro Computer Inc. (NASDAQ: SMCI) and Moderna Inc. (NASDAQ: MRNA) getting deleted.
These shifts will force funds that track the index to buy the names getting added — and sell those being removed.
That means huge flows in (and out) of these stocks heading into the end of the week. Watch for wild moves, especially on Friday as the rebalance gets finalized.
The Fed Decision Tomorrow
The Federal Reserve meets midweek, and while no one’s expecting surprises, it’s keeping volatility pinned down for now.
But don’t let that fool you — it’s a tough trading environment. The market is full of noise, making it tricky to get clean entries and exits.
I’d call this an easy time to stay invested, but tough to trade. The powers that be are pinning volatility down and I’m just not seeing the moves I like.
While the market is obviously ripping, it’s not ideal for my trading strategies. The day-to-day swings are choppy and unpredictable.
Year-End Tax Harvesting
After the rebalance, keep an eye on year-end tax-loss harvesting…
This creates opportunities in beaten-down names as investors sell for tax purposes, only to buy back into similar names after the new year.
It’s a classic end-of-year trade, and I’ll be looking to position myself accordingly into some Burn Notice puts.
WARNING: Don’t bottom-fish beaten-down names right now as they could get sold off further due to taxes.
How to Approach This Week
The next couple of days could be choppy — just noise, as the market waits for the Fed and the NASDAQ rebalance.
But come Friday, I expect a flurry of opportunities, especially around the rebalance flows.
You know me, I’ll be putting out a Burn Notice on Friday to take advantage of those setups.
As for today and tomorrow, keep things tight. Don’t overtrade in this environment — it’s easy to chop yourself up while waiting for the real action.
The end of the year always brings quirks to the market. From the NASDAQ shuffle to tax-loss harvesting and window dressing by funds, there’s no shortage of upcoming catalysts.
Let’s make some money in the last full week of 2024.
Happy trading,
Jeff Zananiri
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