Happy New Year’s Eve, traders…

Jeff here. 

We’re in that strange, in-between week — post-Christmas, pre-New Year…

With two four-day trading weeks back to back, it’s the kind of time where you might feel like coasting a bit. 

But you should actually be more focused than ever right now…

This is the week when we’re supposed to get the classic Santa Claus Rally — that nice little pop in the markets as traders spread some holiday cheer and stocks get a final lift before year-end.

Except this year? No Santa Claus Rally. (Arguably, it was pushed forward to the beginning of this month. But the typical Santa Rally Window is bringing something different…)

What we’re seeing instead is a Santa Sell-off…

The markets, which have been unstoppably bullish since August, are finally hitting some turbulence. 

And no, this isn’t just a little dip. It’s a legitimate air pocket — possibly even a major trend reversal — that could knock the wind out of your account if you’re not appropriately positioned.

With that in mind, let’s get to my Tuesday Market Outlook for the last few days of the year…

What’s Going On?

Those who think the market just goes straight up forever were met with a rude awakening over the past two weeks. 

Market sentiment has shifted drastically since the last Fed meeting…

After a 1,000-point drop in the Dow followed by a weak-volume Christmas trading week, we’re seeing more selling pressure to start this week.

Yesterday, the S&P 500 was down as much as 1.6% before recovering slightly in the mid-morning.

Bottom Line: The market is still digesting the recent Fed commentary (re: less interest rate cuts moving forward), and no one knows exactly where it will settle. 

What we’re seeing right now is a combination of overextended sentiment, light holiday trading volume, and year-end positioning by Smart Money traders. 

I’ve been warning my students about the existence of a market bubble for some time now, and it might be starting to pop. 

But we can’t get ahead of ourselves. This doesn’t mean the bull market’s over … yet. 

In fact, this kind of action often sets up violent short squeezes and quick rallies. There’s a lot of opportunity to capitalize on … if you stay sharp.

How to Navigate This Week

To navigate this choppy market, you’ve got to keep your head on straight and balance offense with defense:

Hedge Your Trades

If you’re holding bullish positions — especially call options — hedge them with some QQQ, SPY, or IWM puts. It’s the simplest way to protect yourself if the sell-off deepens.

Lean Into Volatility

I’m bullish on volatility here. The VIX is under 20 right now, which simply isn’t reflecting the high level of volatility I’m seeing. When the market’s this unpredictable, volatility tends to spike, and you don’t want to be caught without exposure when it does. (This is another way to hedge call options.)

Shrink the Game

Keep your trades small and your stops tight. This is not the time to make outsized bets on any single idea. You’ve got to stay nimble and be ready to pivot if things don’t go your way.

Refresh Your Portfolio

Don’t get stuck in old plays during a trend reversal. Rotate out of stale positions and into new opportunities. Take the boring, languishing stocks off of your watchlist. The market is moving fast, and staying flexible can give you an edge.

Why I’m Looking Forward to 2025

Right now, you’re setting the stage for the new year…

The Fed’s shifting its stance, a new administration is headed to the White House, and asset prices are bound to readjust accordingly. 

How you handle this moment matters…

The moves you make in the next few days — and early January — can set the tone for your entire trading year. 

Preparation and discipline are the keys to turning this volatility into profit. Don’t get lulled into complacency. 

A Quick Recap

• Santa Rally? Not this year—it’s a Santa Sell-Off instead.
• Watch for short squeezes and relief rallies through the rest of the week.
• Hedge your bullish trades with index puts or VIX calls. 
• Keep trades small, honor your stops, and stay active.
• REMINDER: The market is closed tomorrow (Wednesday, January 1). 

Be safe tonight, don’t party too hard, and let’s make 2025 our best trading year yet. 

Here’s to a great new year, 

Jeff Zananiri

P.S. TODAY, December 31 at 11 a.m. EST … I’m hosting an URGENT LIVE WORKSHOP to break down the biggest Burn Notice trade opportunities of the week.

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*Past performance does not indicate future results