The bears are having a tough morning. Many were convinced the Italian referendum would usher in the next great market crash. News that Renzi’s referendum failed to pass did cause some selling, but it lasted all of a few hours.
Turns out, the Italian referendum result was indeed “all baked in” and no catalyst for the next great market crash.
Where does that leave us? Shorts are scrambling to get in all of their “end of the world” trades. Spooz is set to gap up almost 10 bucks, bonds are down once again and gold is getting bludgeoned.
I did not think the Italian referendum would be the catalyst for some great global market sell off. The polls were clearly indicating Renzi would lose. This was no Brexit/Trump surprise.
What’s not to admire about the Italian’s love of life, but let’s face it, the fact the Italian government is dysfunctional is about as much of a surprise as the fact Lindsay Lohan enjoys the odd cocktail.
But maybe this short covering rally is an opportunity. A lot of market commentators are touting December’s strong seasonality. Yet many are failing to note that much of the gains comes in the last two weeks of the year.
Here are a few charts that highlight this pattern throughout the years.
I am using this morning’s US stock market strength to sell into. But instead of just going short, I will sell a two week at the money S&P 500 call, and buy a year end (December 30th) call.
I suspect the last remaining shorts are about to give up. From there we will get a week or two of declines that encourages all sorts of new bearishness. Yet much to their frustration, we might find that Santa once again shows up and keeps this year end pattern alive.
I am not going to over think this consistent seasonality. And this morning’s squeeze offers the perfect opportunity to put the trade on against weak hands.
Thanks for reading,