Whales are Making Big Money on a Tanking S&P 500, But Santa Claus Rally Is Still Coming: Hedge Fund Manager

December 4, 2019 1:52 PM UTC
S&P 500 is down in December. Analysts predict more blood on the horizon. One trader sees the S&P 500 ripping just before the end of the year.
  • The S&P 500 succumbed to intense selling pressure to start December.
  • Analysts predict more blood on the horizon but consider the selloff as healthy.
  • A particular trader sees the S&P 500 ripping just before the end of the year.

The first two trading days of December have been blood for the the S&P 500. The index is down by as much as 2.3% and was on track to wipe out all of November’s gains in just two days. Fortunately, bulls stepped in and pushed this stock market index above 3,090.

Will Meade, a former Goldman Sachs analyst, reads the options market. The hedge fund manager observed that smart money investors are placing puts on the SPX. He predicted that fund managers were cashing out to lock in gains and get their paychecks before the end of the year. That’s exactly what happened.

Analyst Will Meade was right on the money. | Source: Twitter

Even with Tuesday’s late recovery, it appears that the selloff is far from over. It is very likely that the stock market will continue to plunge before rallying towards the end of the month.

Early December Dip to Set Up Late December Rip for S&P 500

It appears that December is about to get bloodier. Will Meade shared on Twitter that a whale placed a $31 million put trade in the S&P 500. For the hedge fund manager, the trade is a clear sign that smart money investors are taking profits. More importantly, the magnitude of the put order indicates that the index is about to take a turn for the worse.

Whales plan to make big money while taking profits and driving down the SPX. | Source: Twitter

From a technical perspective, a significant retracement makes sense. The S&P 500 had been climbing since October. From the low of 2,892.7, the index soared to an all-time high of 3,154.30 in November. That’s a monster rally of over 9% in two months.

It’s not surprising that the index is overvalued in both the weekly and daily time frames.

The S&P 500 is showing signs of bullish exhaustion. | Source: TradingView

Mark Minervini is not troubled by the correction. According to the trader, the index is likely to retrace between 3% and 5% from the all-time high. The range of the pullback puts the S&P 500 close to the 3,000 support.

Prominent stock market trader believes that the correction should be expected, | Source: Twitter

Santa Claus Rally Likely to Happen Late

A dump to 3,000 might hurt your portfolio, especially if you bought the top. However, a pseudonymous trader named JE$US is confident that bulls will end December on a high note. The trader revealed that December is historically a bullish month. Bulls have controlled the last month of the year 73.6% of the time with a 1.29% average return.

The numbers favor the bulls. | Source: Twitter

Here’s the catch: Bulls make their move towards the end of the month. JE$US revealed that the S&P 500 roars during the last five days of the year. The index is up 75.82% of the time in the last five trading sessions of December.

The trader also emphasized that the Santa Claus rally often covers the last week of December and the first two weeks of the following year. The three-week period offers an average return of 1.70%.

Fund managers may be dumping now and profiting from the selloff. From a technical perspective, the period of profit-taking gives indicators time to cool off. By the end of the month, conditions would be ideal for a bounce. It’s possible that the ones selling now would eventually resume buying stocks and kick off the Santa Claus rally.

Disclaimer: The above should not be considered trading advice from CCN.com.

Sam Bourgi edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

Last modified: January 22, 2020 11:41 PM UTC

@kirilnikk123

Kiril is a CFA Charterholder and financial professional with 6+ years of experience in financial writing, analysis and product ownership. He has a bachelor's degree with a specialty in finance and lives in Canada. Kiril’s current focus is on finance and cryptocurrencies. He also has his personal website, Investor Academy, where he teaches people about the basics of investing. He owns Bitcoin, Ethereum, and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading. Get in touch with Kiril: Muck Rack, Email, Follow on Twitter