Trade of the Day: Halliburton (HAL)

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My indicators have turned bullish this week, a slight upgrade from last week’s neutral-to-slightly-bullish readings. However, after the first week of the new year, that could change. As I predicted, we’re in the middle of a “Santa Claus rally,” which has almost an 80% chance of occurring each year.

The current rally that started last week is likely going to continue into early January, but it’s worth noting that it has come on very light volume, which shows that the professionals are not trading as much as usual. The light volume also indicates that there’s no real commitment to this rally, which negates some of the otherwise bullish action.

Now, as we move into the new year on Monday, we should see some of the strong stocks that have appreciated a lot in 2015 start to move down despite the Santa Claus rally as big institutions rebalance portfolios and take profits in winning positions. We’ll likely see bearish pressure come into names like Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG), Netflix (NFLX) and Facebook (FB), which have seen their share prices rise between 20%-145% this year.

From there, we can expect a broader pullback. Over the past 10 years, stocks have fallen by about 1% on average during the month of January. Also, we are in one of the longest-running bull markets in history — the third-longest bull market since 1900 — which tells me that it is getting really long in the tooth, and the effects of the Santa Claus rally will last only so long.

A lot more stocks are currently making new lows than new highs, which does not paint a very pretty picture as far as market fundamentals go. Furthermore, small-cap and transportation stocks, as represented by the Russell 2000 index (RUT) and Dow Jones Transportation Average (DJT), are negative for 2015, registering losses of 4.2% and 17.1%, respectively. All of these are bearish indications for how the market will play out in 2016.

When I hear analysts say that the year ahead is going to be a good one for stocks, I am skeptical. Although, to play devil’s advocate for a moment, the U.S. economy is relatively strong compared to the rest of the world. On the other hand, it would not be impossible for faltering economies around the globe to drag the U.S. economy down with them. If the U.S. economy maintains its strength, however, we could see a better year than usual, but the world economy is not looking good.

Oil remains a real problem, and the price of WTI crude could continue to fall. I’m leaning toward a flat oil market next year, but the potential is there for it to move lower. The problem here is that there are too many countries that depend on oil revenue, and they’re just going to keep pumping, which should drive oil prices even lower.

As such, I have a short-term put play in one of the biggest oil conglomerates out there, Halliburton (HAL).

Buy the HAL March $31 Puts at $1.25 or lower.

After entry, take profits if the HAL hits $30.70 or the option price hits $2.50. Exit if the stock price closes above $35.80.

A reminder that U.S. markets will be closed Friday, Jan. 1, for New Year’s Day. Look for your next Trade of the Day to hit your inbox on Monday, Jan. 4.


Article printed from InvestorPlace Media, https://investorplace.com/2015/12/santa-claus-rally-hal/.

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