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Fed Pivot Fuels Bullish Q4 Options Expiration Week

December’s quarterly option expiration has a solidly bullish history. In fact, the week of options expiration and the week after have the most bullish record of all quarterly option expirations (page 106, Stock Trader’s Almanac 2021 & page 108 in the 2022 Almanac). Since 1982, DJIA has advanced 30 times during December’s options expiration week with an average gain of 0.57%. S&P 500 has a similar, although slightly softer record. However, the record is not pristine. In 2018, DJIA and S&P 500 suffered their worst weekly loss as the Fed remained hawkish and determined to raise interest rates even as economic growth was slowing and Treasury bond yields were falling. In 2011, Europe’s debt crisis derailed the market. In 2012, the threat of going over the fiscal cliff triggered a nearly 2% loss the week after.

Here in 2020 the market responded positively to the Fed’s pivot on inflation to accelerate the pace it winds down its asset purchase program and raise rates in 2022 and rallied solidly after the announcement this afternoon. This come-to-Jesus moment on inflation for the Fed may be the spark the triggers the usual yearend rally the begins mid-month and deliver the Santa Claus Rally on schedule.

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