There could still be time for the traditional ‘Santa Rally’ on stock markets, spurred on by the latest encouraging data from South Africa on the Omicron variant and positive technical evidence that US shares are building up a head of steam.

Case levels in the Gauteng region of South Africa appear to have peaked slightly earlier than projected.

Encouragingly there has only been a slight uptick in the number of deaths compared with the Delta variant with an estimated 640 in total compared with 15,400 confirmed deaths from Delta according to the National Institute for Communicable Diseases.

This opens the possibility that Omicron may be far less severe than its Delta cousin, giving market sentiment a boost.

Before Omicron the S&P 500 was regularly making new highs, but the number of stocks participating in the rally was low. In fact, over half the S&P constituents were down more than 10% from their highs at the end of November according to Reuters.

This technical weakness seems to have given way to more broad-spread participation recently which is usually a sign of strength. For example, the percentage of stocks in the S&P making five-day highs has improved from zero to 80% in the last week.

The balance of advancing minus declining stocks, a measure of market breadth, has improved from minus 80 to plus 80. Technical analysts interpret sharp reversals as possible capitulation points.

‹ Previous2021-12-16Next ›