Posted November 30, 2014 7:55pm
December is typically one of the strongest months of the year. It is usually a month that has very little volatility and slowly melts higher. The question is how should one play a year-end rally?
I think the best way to play for a year-end rally is through the S&P 500, either through SPY calls or SPXL (3x Leveraged SPY ETF). December tends to be on average up around 1.5%, and is actually even stronger in a mid-year presidential cycle. I would take any dip and would initiate a position in either SPY calls or the SPXL. The week after Thanksgiving tends to be weak, this means that any dip should be viewed as an opportunity.
Arguably, the biggest reason for the market to rally is the fact that hedge funds have underperformed the market. In fact, over 86% have underperformed the market, according to an article by CNBC. This means that there is going to be a lot of interest to buy stocks going into the New Year. I do not expect there to be the real ‘Santa-Claus’ rally until the last two weeks of the year. However, I feel that it is appropriate to buy the SPY on any dip, so that way you do not lose the opportunity.