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Until a few days ago it really looked like Santa was only going to bring lumps of coal for traders, but this week's rally suggests that Santa may have some good cheer after all, if only for a little while.
A lot of markets had become extremely overextended lately and the big reversals suggest a lot of profit-taking and position squaring ahead of the holidays, combined with some traders looking for pre-holiday bargains.
The rebound in stocks currently underway has been in conjunction with a rebound in crude oil and a number of major developments around the world. Let's take a quick look at some of these factors.
Oil
Oil rebounds as companies cut back on capital programs. This is a good start and may help to stabilize the oil market for now, but there is still a difference between cutting back on exploration and expansion (taking foot off the gas) and shutting in production (putting foot on brake). Even if oil stabilizes near $60 for a while, we could still see $50 before $80 again.
Russia
Stabilization measures from Russia's central bank has helped to ease the panic run on the ruble for now but doesn't mean things are about to turn around any time soon.
The Fed
Yesterday the Fed changed its "considerable time" guidance to "can be patient", which stock traders have taken as bullish. However, currency traders have taken the FOMC meeting as being more hawkish. Fed members raised many of their economic projections, and Fed Chair Yellen indicated the Fed may remain on hold for a couple of meetings and that it could start at any meeting, not just one with a press conference. This suggests the FOMC could act as soon as its April meeting, earlier than the June first hike that had previously been widely expected.
Cuba
The U.S. deciding to bury the hatchet with Cuba certainly doesn't hurt matters but its impact on corporate earnings and the markets may be more in the longer term if any.
Switzerland
The Swiss National bank went to a negative interest rate to try and stop people from using the country as a haven for capital which had driven up CHF in the past. Today, CHF is the worst performing major.
Greece
Greece did not elect a new president in the first round of parliamentary voting but this was widely expected.
Without wanting to sound like Scrooge or the Grinch, this looks like another relief rally. It's questionable how sustainable the advance may be, so enjoy the holiday cheer while it lasts.
Note how even though USD is gaining today on speculation of a more hawkish Fed, gold and silver are up even more indicating some traders have been taking advantage of this rally to move into defensive positions.
Even if markets manage to stabilize into and through the holidays, it's important to remember that none of the factors that drove markets down recently have really changed, so we may see ongoing volatility and increased opportunities for trading continue well into 2015.