Let the rally begin
Join me as I organize my thoughts about the upcoming week
Frequently the first week of December can be a period of chop before moving into the Santa rally (yes, I’m tired of saying it as much as you're tired of hearing it), but we moved up about 1% this week. Will that continue into next week? We will talk that and more in this week’s letter.
Market Review
Perspective. Here is SPX since late 2019. This chart includes the COVID-19 crash and the 2022 bear market. Since then, it’s been pretty clear sailing. The hardest patch since 2022 was Aug-Nov 2023, when it dropped close to 11%. As posted last week, we typically have a 10% drop every other year, so this gives us some pause for next year. While I don’t believe we will drop 10% soon, if we were to start now that would take us down to about 5050.
However, there’s not much concerning about this chart. As they say, if the most bearish thing about a chart is how bullish it is, it isn’t bearish. You could say that we are getting extended from the 200 week, and that’s not necessarily wrong. But zooming out and turning on log, you can see we’ve had more volatility in the last 4 years than really anytime since the housing crisis. You could argue that we are due for some calmness. We can go many years without touching the 200 week, and we touched it at the end of ‘22 and were pretty close even as recent as the end of 2023.
You can also point to the fact that the market is up early 28% this year, and that that pace isn’t sustainable. This is also true, but there is a strong change that the market reacts positively in the near term to Trumps America-First policies. Though these policies impacts often take years and decades to fully show their impact, the fact that he intends to shake things up could bring more excitement.
No matter your political opinions, if you zoom out, it’s up and to the right. As I continue to struggle with my short calls, I continue questioning how much I want to fight them. They have been open for 90 days (including rolls) and that takes its toll mentally (and financially).
I’m up 53% year to date, and while that’s way down from where I was earlier, I also need to step back and be proud of my performance. Could it be better? Sure. Is it better than SPX? Yes. And that’s ultimately our goal here, isn’t it. If we cannot consistently average out above the indexes, then there’s no point. My portfolio gets increasingly bearish as we move higher. I was hoping for a small dip this week so I could exit some calls, and add the extra premium to my basis, but nope. We just keep moving higher. Alas.
For the record, my daughter who is running a similar, more conservative strategy on /MES is up 29.41% this year. While this is barely beating the market, it’s running a neutral strategy. If we can keep up in the up years, and blow out SPX in the down or flat years, we will be well ahead of the game.
Tweets
This is how it goes. Some warnings signs start peaking through, until enough of them pile up for it to meaningfully impact the market. I like to think of it as a toilet. We keep to pile shit in, and then it flushes and resets.
With the rise in SPX naturally, VIX is at lows. This is a two-year chart, including all of 2023 and 2024. You can see there has been plenty of volatility, and so we look set up well for some return to volatility in the new year.
100% tariff is insane, and likely just a threat, but the interesting thing here is that BRICS is moving away from the dollar for exactly this reason. It’s an interesting strategy to force their hand to accomplish something they are trying to do anyway. Threats are only good if people think they are real AND don’t want them to happen. When BRICS moves away from the dollar, we will then be faced with whether a 100% tariff makes sense, which it doesn’t. So will be fascinating to see how this one pans out. Gotta sit back and just grab a popcorn.
Wanted to end with this chart showing the expected 2024 returns by the analysts vs. actual. We opened at 4745, so a quarter of the targets were below the open price, meaning a negative year, and here we are up 28%. While I expect next year to be good, no one knows where the market is going.
Quick Charts
Apple is up 2.3% this week, after consolidating since July. The 236.80 level should act as good support going forward. At the moment, though, I'm not a buyer here. I would love to see a confirmation and go long then. Interestingly, it does look like momentum is waning, and so if it does fall, it will be a headwind for the market. Generally speaking, a lot of tickers I look at looks near the tops of their ranges. It was hard to find anything I really wanted to enter to end the week.
I’d be interested in picking IWM up at 232 and even more at 227. We will see if that happens or not (setting my alerts). Down 1.2% this week.
Vix down 5.5%. $12 is the lows for the year, so we are sitting just above that. We likely hit it this week.
Despite SPX being up around 1% stocks >50ema moved down from 72.6 to 59.2.
Decent drop this week from 73 to 53. We are back in neutral territory. The contrarian in me says we are coiling in November and December. We’ve been making higher lows, and avoiding highs. This seems like we will get that final push higher to over 75.
NAAIM is down slightly, but in fairness, it was near its highs. Was 99 last letter and moved down to 85.5 this week.
Earnings and Events
2024 Results
Q2 Winners: ELF, FSLR, CHWY, CRWD, AVGO, ADBE, ORCL, FDX.
Q3 Winners: GS, SPOT, LMT, ENPH, TMO, RTX, MCD, PYPL, PLTR, UBER, UPST, SHOP, LLY, TTD, SE, ORCL, MU
Q3 Losers: UPS, QCOM, LRCX, MBLY, W, INTC, ROKU, SMCI, ABNB, DG, AVGO
Q4 Winners: TSLA, CVNA, PLTR, ELF, SHOP, SPOT, DIS, SNOW, DE, CRM, LULU, ULTA
Q4 Losers: HOOD, ROKU, W, MELI, NVAX, RKT, AMAT, TGT
Last Week
Dang. I was tempted to play some earnings this week, especially DOCU, but there was a chance these three could have turned down. Oh, well.
CRM +9.7%
DG +5.6%
LULU +25%
PATH +4.2%
ULTA +10.7%
DOCU +34.3
This Week
Interested in: ORCL GME ADBE AVGO COST
Pretty light week this week with only a couple earnings and really only CPI and PPI.
This past week nothing caught my attention, but I was busy working, even more so than normal, so that could have been it.
We have a week and a half until rate cuts. Things cleaned up since last week when there was a random reading for December of ‘25 to cut down to 300-325. Probably just a glitch. So a cut in December, March, June, and then December.
Thoughts
I was feeling bearish last week, and I'm feeling the same this week. This happens to me when I get jaded about my current position. I try to remind myself that it can't go up forever, and I'll exit appropriately on the next dip. But that it can still go up for a while, so continue to push your portfolio to neutral. It's a never ending job.
Lots of charts I'm looking at look toppy to me. Any higher and they would begin defining a new range, despite many having recently broke out.
I almost think since the year has been so bullish that we end up skipping the Santa rally just to mess with everyone. Give back 6% into the end of the year, piss a lot of people off, and end the year just above 20% YTD. Maximum pain. But that's most likely just wishful thinking.
Still, I don't think enough things are stacked up yet against the market. The tailwinds likely continue to outweigh the headwinds for the coming week.
Rating
My attempt at being clearer on my expectations for the upcoming week:
Bullish
Bullish/Neutral
Neutral/Bullish
Neutral
Neutral/Bearish
Bearish/Neutral
Bearish
The market has already moved quite a bit. If we sort of have a blow off or exuberant run up, that may be conducive to a mini crash early next year. I would like to avoid that if possible. My base case is that we creep higher with a lot of chop because things have moved already recently, and overall this year. This is why I've been continuing to hold the calls and haven't thrown in the towel. A slow grind up, even if my strikes are in the money, is manageable. If we do quickly thrust up, then I will have to capitulate.
I was expecting #4 this past week and that was perfect. I am leaning that direction again. I think it’ll be on the upper side of that, flirting with #3, but of course I'll continue to wish for #5.
Conclusion
Last week I said I was two weeks away from rolling out the new TastyTracker, so that would leave me one more week. Can I do it? Who knows, it's getting pretty close to something that's usable. I have been using it for a couple of weeks in my small account to help work out the kinks. There are of course a million features and fixes that I want to do, but the list of things I NEED to do to make it usable is getting ever smaller.
Good luck out there!
As always, staying realistic and nimble is key to moving forward productively.
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