The “risk-on” trade seems to be hanging tough as more than a passing fad. Risk-off means that money is flowing into safe havens like U.S. Treasuries and solid currencies like the U.S. dollar and Swiss franc; whereas risk-on means that money is flowing into more speculative assets like equities, commodities, emerging markets, and higher yielding currencies.

It’s a very tough call to ascertain What the Market Wants this week.  Clearly, the market was dismayed by the unexpected downgrade to France’s credit rating on top of the handful of other downgrades that were not such a surprise.  Recall that Fitch analysts had predicted earlier last week that France would keep its topnotch AAA+ rating.  While the market was spooked Friday, not all of the gains from earlier in the week were wiped out.

Stocks are maintaining their bullish sentiment for the New Year. The proverbial “wall of worry” remains high and intimidating, but bulls traditionally prefer it this way. It makes the less optimistic investors keep a store of cash, and it keeps the bears pumping money into short positions—both of which can provide fresh fuel for stocks when idle cash gets put to work and the bears start covering their shorts.

After closing 2011 at exactly the same level it closed out 2010, the S&P 500 came blasting out of the gate with guns a-blazing on Tuesday to celebrate the New Year. It was a welcome sight to scores of nervous investors.

Today, the market had its best single-session move in more than two weeks. Spurred by a lack of economic data before the market open and positive performances in foreign markets, stocks opened up and stayed positive on better than expected economic data. The S&P 500 finished up +1.55%.

Bulls are trying mightily to ensure the Santa rally holds into year-end and close the year in the positive, as all eyes remain on Europe.

Okay, Virginia, Maybe There is a Santa Claus . . .

Like the nice employer who never fails to pay a Christmas bonus every year, Santa seems bound and determined to give bulls the year-end rally they have come to expect. But bears aren’t going away quietly—although bulls got some unintended help from the bears with Tuesday’s short-covering-fueled rally.

Bah! Humbug!

By David Brown, Chief Market Strategist, Sabrient Systems