The Smart Money’s Betting on a Thanksgiving Rally

It shouldn’t come as a shock that this time of the year is historically met with a bullish bias. After all, with the biggest eating day of the year coming up tomorrow (Thanksgiving, for our international friends) followed by a shopper’s wonderland on Black Friday, investors should be trading with two positive events at the forefront of their minds. But it doesn’t quite work that way – and if you’ve been watching the market so far this week, it’s clear that stocks aren’t in rally mode.

That said, the smart money is still betting on a post-Thanksgiving rally. Here’s a look at why you should expect stock market gains next week…

The start of this week was anything but auspicious for investors hoping to see an upswing in stocks. Yesterday alone, the S&P 500 gave back nearly 1.5% of October’s hard-earned gains. And although stocks are having a strong showing today, that’s more of a reaction to Tuesday’s large-scale sell off than a bullish signal on its own.

So, why on earth should we be expecting a bullish move going into next week?

For starters, Thanksgiving week is historically a big bullish catalyst. According to a study of the S&P 500’s price behavior since 1950, this week has been a jumping point for stocks nearly 75% of the time. When looking at this data, don’t fall for the old saying that tells investors “past performance does not indicate future returns” — the truth is that past performance like this is highly correlated with future returns. (I know more than a few millionaires who’ve made their fortunes on that principle alone.) In reality, that Thanksgiving week win ratio is significant.

Also significant is the number of traders who’re betting on an upward move in stocks. If you’re an avid Sleuth reader, you probably know that I spend most of last week in Las Vegas at two trading conferences. While there I got a chance to speak with some prominent (and successful) short-term traders about where the market’s headed…

A surprising number of these smart money traders are betting on higher stock prices to end the month.

For the most part, these guys don’t really care which way the market’s headed; they make money in either direction. So I take notice when this group of professional traders makes a convicted bull call.

At the end of the day, though, I don’t rely on others’ opinions of what’s going on with stocks. Instead, in the short-term, the real story is in the technicals. See for yourself:

With a support level at 1175 already tested for the S&P, the market’s downside protection is fairly strong. That support level acts as a sort of price floor for the market – as does the S&P’s 50-day moving average, which is currently sitting at that same spot.

Chances are in the next several trading sessions we’ll get a run back up to resistance, which is presently just below 1230. Ideally, though, I’d like to see the S&P continue to bounce in that channel for a couple of weeks before attempting to move higher – that way, we’ll avoid pushing into overbought territory at the weekly level.

With that, enjoy today’s market bounce, and the reprieve from trading on Turkey Day tomorrow. We’ll be back on again with a special Black Friday edition of the Weekend Sleuth to end the week.

Happy Thanksgiving,
Jonas Elmerraji
Penny Sleuth

November 24, 2010

The Smart Money’s Betting on a Thanksgiving Rally was originally featured in the Penny Sleuth. Check out Wall Street’s 5 Most Profitable Penny Stock Patterns Report.

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