A very late Santa Rally appears to have been set up in the US markets as we close in on the end of 2021. The US markets have already started a melt-up trend – which is what I expected to happen prior to the bout of volatility over the past 30+ days.
A Very Late Santa Rally Could Prompt A Powerful Move Upward
A very late positive shift in the US major indexes may prompt a powerful upward price trend in early 2022. I expect that Q4:2021 earnings and revenues will continue to impress traders while the US Dollar strengthens above 95. This combination of a strong US economy with a stronger US Dollar will continue to attract foreign capital investment in US equities in early 2022.
Traders won’t want to miss the potential for a Q1 and Q2 rally phase in the US markets IF the US Fed stays moderately inactive throughout the first half of 2022.
Traders were concerned that the US Fed and Inflation would prompt a sudden shift by the US Fed. Still, I believe the new Omicron COVID virus and the shift away from hyper-inflationary trends may alter how the Fed sees the global economy in 2022. The US markets may be strengthening simply because of the additional stimulus and strong US consumer activity from the recovery/reflation trade momentum (late 2020 and almost all o 2021). The early 2022 trends may carry momentum into the first two Quarters of 2022 with slowly diminishing strength overall.
Please take a minute to review our ADL Price Predictions for 2022 in this research article: The Technical Traders
S&P 500 Rallying To New All-Time Highs To Close Out 2021
The S&P 500 recently rallied to new all-time highs just days before the end of 2021. This move suggests traders are shifting away from broader market concerns and starting to pay attention to the pending Q4:2021 earnings and revenue data and the 2021 Annual Data that will hit over the next 30 to 60+ days.
Even though the markets are looking for any reason to spike the VIX (volatility), I believe the momentum behind this rally phase is going to continue to drive the S&P 500 up towards 5000 – or higher. My expectations are that we will see a fairly strong 5% to 8% rally in early 2022 from the 2021 end-of-year price levels. I believe the US market is attracting lots of foreign market capital as long as the US Fed does not do anything to topple the current market dynamics.
NASDAQ Is Struggling To Reach New All-Time Highs, But Could Explode Higher In Early 2022
Even though the NASDAQ appears to be more volatile than the S&P500 and Dow Jones, it stands a very good chance of exploding higher in early 2022 as Q4:2021 earnings are announced, and end-of-year revenues and US economic data are presented in January/February. I expect that technology will continue to dominate trends related to how US consumers spend their time/money in 2022 – especially if we continue to go through more COVID virus waves.
The sectors I’m watching in 2022 are Housing, Technology, Healthcare, Consumer Staples/Discretionary, Metals/Mining, and Retail. If there are any signs of concern in the US/Global markets, I expect to see these concerns appear in the strongest sectors right now (Consumer, Retail, Metals, Housing, and Technology). The US Fed will probably not take any severe actions in Q1:2022 and maybe talk about raising rates in Q2:2022. This means the US markets will continue to attract foreign capital, and traders need to prepare for a potentially explosive upside price trend in the NASDAQ before March 2022.
I continue to believe the US markets have been transitioning throughout all of 2021 and will continue to transition into a more stable and opportunistic market in 2022. This means the highest-flying hot sectors may stall out a bit if market dynamics shift, but it also means we may see a resurgence of bullish momentum in early 2022 for sectors that have languished over the past 6 to 8+ months. One sector that I’m watching is the Cannabis sector and Metals/Miners. I believe both of these sectors may start to move dramatically higher in 2022 as capital seeks out opportunities in undervalued asset classes.
I wrote many years ago about how capital acts like a living-breathing entity – always seeking opportunity, safe environments, profits, and avoiding danger/risks. As the markets continue to transition in 2022, watch for the strongest sectors in 2021 to continue higher in early 2022. But also watch how the markets transition and look for new opportunities after February/March 2022. This is when to plan for a shift in market trends – when the markets start to focus on undervalued market sectors for 2022.
Want to prepare yourself for trading and investing in 2022?
Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.
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Have a great day!
Chief Market Strategist