The Santa Claus Rally (SCR) was teed up beautifully as I wrote last week. The markets had that one-day plunge from Jay Powell’s less than stellar press conference and the bears followed through the next day to a small degree. Then we had that emotional reversal 9 days ago on the largest expiration of derivatives of the year and I think of all-time.

As we know from decades in the markets, just because something looks perfect it doesn’t mean that it is like shooting fish in a barrel. I used the word “however” three times to make sure everyone understood and not to throw caution to the wind. I wrote that my line in the sand to know I was wrong was a close below 5830 on the S&P 500. If Santa was happy and healthy that line should not be breached.

Last Friday was on the ugly side. Some, many, most will dismiss it because of the low volume. I am always careful not to qualify market behavior. On Friday, only 18% of NYSE issues were up on the day. And only 16% of the volume was in stocks that went up. That says we had real and perhaps indiscriminate selling on a low volume day.

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This morning, pre-market trading is decidedly negative and it’s deep enough that I do not think a reversal to green is in the cards. Back to back 1%+ losses this late in the year is rare. My thesis has been for Santa to appear with a tradeable rally into early January and then a deeper pullback. I have to be open to the scenario that the rally may not occur and the deeper pullback is here. That’s makes it more difficult to maneuver. If that’s the case then I fully expect 5800 to be seen on the S&P 500 sooner than later with risk a few hundred points below that.

On Tuesday we bought more QQQW, MQQQ, UWM and MTUM. We sold QMOM. On Thursday we bought GDX, NUGT, PCY, SDS and more MQQQ. On Friday we bought FDEC and QDEC. We sold SDS.

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