Santa Claus Rally Could Be in for a Bumpy Sleigh Ride This Year

NEW YORK (TheStreet) -- The Dow Transportation Average (9198) remains the leader among the four major equity averages with a year-to-date gain of 24%, as the price of a barrel of crude oil traded as low as $65.69 on Friday, down 33% year to date. Transports set an all-time intraday high at 9319 on Friday.

In second place is the Nasdaq (4791) up 15% year to date setting a multiyear intraday high at 4810 on Friday, which is only 6.3% below the all-time bubble peak of 5132 set in March 2000.

In third place is the S&P 500 (2067.6) up 12% year to date setting an all-time intraday high at 2075.7 on Friday.

The Dow Industrial Average (17828) is the laggard up 7.6% year to date after setting an all-time intraday high at 17894 on Nov. 21. The three stocks that have been a drag are, International Business Machines (IBM) , Chevron (CVX) and Exxon Mobil (XOM) with year-to-date declines 14%, 13% and 11%, respectively.

The Santa Claus rally is a play on overbought technical momentum on weekly charts. The bumpy ride is influenced by key technical levels for December. The key technical level to hold is 17737 Dow industrials with technical barriers at 2089.3 on the S&P 500 and 8343 Dow transports. In-between is a key level at 4784 on the Nasdaq.

Safer investments such as Dow utilities and Treasuries have rewarded investors with gains of 21% and 20% year to date, respectively.

Trading and investing momentum in exchange-traded funds requires exit strategies. Have price targets and enter a "good 'til canceled" limit orders to book profits on strength to those levels. Also have an exit strategy following the key weekly moving averages and enter sell-stops to lock in gains if the ETFs fall below these averages.

SPDR Dow Jones Industrial Avg ETF (DIA) ($178.10) is well above its 50-day and 200-day simple moving averages at $171.01 and $167.51, respectively. The Dow 30 ETF is up 7.6% year to date after a gain of 2.7% in November setting an all-time intraday high at $178.69 on Nov. 28.

Investors should book profits by entering a "good 'til canceled" limit order to sell strength to a key technical level at $184.50. The sell-stop to lock in gains is the key weekly moving average at $173.80.

SPDR S&P 500 ETF (SPY) ($207.20) is well above its 50-day and 200-day SMAs at $198.56 and $193.68, respectively. The S&P 500 ETF is up 12% year to date after a gain of 2.7% in November setting an all-time intraday high at $207.87 on Nov. 28.

Investors should book profits by entering a "good 'til canceled" limit order to sell strength to a key technical level at $209.35. The sell-stop to lock in gains is the key weekly moving average at $201.95.

PowerShares QQQ Trust ETF (QQQ) ($106.01) is well above its 50-day and 200-day SMAs at $99.49 and $94.09, respectively. The Nasdaq 100 ETF is up 21% year to date after a gain of 4.5% in November setting an all-time intraday high at $106.24 on Nov.28.

Investors should book profits by entering a "good 'til canceled" limit order to sell strength to a key technical level at $107.80. The sell-stop to lock in gains is the key weekly moving average at $101.50.

iShares Transportation Average ETF (IYT) ($165.33) is well above its 50-day and 200-day SMAs at $154.22 and $145.47, respectively. The Transportation ETF is up 25% year to date after a gain of 5.5% in November setting an all-time intraday high at $167.80 on Nov.28.

Investors should book profits by entering a "good 'til canceled" limit order to sell strength to a key technical level at $168.32. The sell-stop to lock in gains is the key weekly moving average at $158.20.

Utilities Select Sector SPDR Fund (XLU) ($46.00) is well above its 50-day and 200-day SMAs at $44.11 and $42.58, respectively. This ETF is up 21% year to date after a gain of 1.2% in November setting an all-time intraday high at $46.61 on Nov. 5, a key technical level where investors should have booked profits.

The sell-stop to lock in gains is the key weekly moving average at $44.80.

Investors looking to increase allocation to utility stocks should use a "good 'til canceled" limit order to buy weakness to a key technical level at $42.90.

iShares 20+ Year Treasury Bond ETF (TLT) ($122.49) is well above its 50-day and 200-day SMAs at $119.06 and $113.78, respectively. This ETF is up 20% year to date after a gain of 2.7% in November setting an all-time intraday high at $132.21 on July 27.

Investors should book profits by entering a "good 'til canceled" limit order to sell strength to a key technical level at $124.70. The sell-stop to lock in gains is the key weekly moving average at $119.70.

At the time of publication the author held no positions in any of the stocks mentioned.

Follow @Suttmeier

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


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