Steady as she goes

Posted by Cam Hui -

Mid-week market update: Not much has changed since my last post, so I just have a brief update during a thin and holiday-shortened week. The S&P 500 remains in a shallow upward channel while flashing a series of “good overbought” conditions during a seasonally positive period for equities. The index staged an upside breakout at the 3700 level. The breakout has held and the market gapped up on Monday. The bears need the index to retreat and fill in the gap as a minimum signal of market weakness.
 

 

Cross-asset risk appetite is holding steady. Credit market risk appetite is holding up well. In particular, the muni market isn’t showing any signs of stress as the Fed’s support expires at year-end.

 

 

Risk appetite indicators from the foreign exchange market are also confirming the equity market advance.

 

 

Short-term breadth indicators are not overbought, indicating the market has room to rise.

 

 

The traditional Santa Claus rally window ends next week on the second day of the year. Expect the market to grind upwards until then, at the very least.

 

Steady as she goes.

 

 

Disclosure: Long SPXL

 

9 thoughts on “Steady as she goes”

  1. Keeping an eye on DeMark’s predicted target for the SPX. A lot can happen over the next six trading days. For that matter, a lot can happen in a single trading day. The catalyst for a move to 3900 would have to be unexpected. Perhaps Republican approval of an increase in stimulus payments. Or a report that indicates current Covid-19 vaccines are indeed effective against the new strain (probably an animal study). A 4-5% move between now and January 8 is entirely possible.

    1. Catalyst could be Georgia election, if Democrats turn out their base. Right now the early turnout is quite blue, which is expected, and large, which was an unknown. We’ll know soon enough.

  2. The SPX is a battleground of high weighted FAANGs doing poorly and Value soaring. Mines and Metals XME up 3.5% and Banks KRE up 1.5% when SPX barely positive. Emerging Markets EEM also continues to soar.

    In my opinion, it’s easier to get a sense of direction with a purer Factor index like Value or Growth than mixing these cats and dogs together. Just use SPX as a measurement not an investment.

    To me, the amazing vaccines are a much bigger boost to stocks that are economically sensitive in the Value sector. The growth had huge run (maybe too huge) with the stay at home narrative up until the November 9 vaccine day. All my momentum work says leadership has flipped. Leaders keep leading until they fail.

    People who don’t want to believe the new leadership may point to certain Value areas that are underperforming. But the confirmation is the big Value things leading like Australia, Canada, global metals, energy. Global banks, emerging markets, agriculture etc.

    These will have ups and downs but I expect them to act clearer than SPX and surfing their waves will be easier to do well.

    1. Ken do you continue to see the trend of the dollar as down? At some point it is going to rally which historically has had an adverse impact on foreign markets.

      1. The USD will continue on a downward trajectory until normalized GDP growth is restored. With the Covid threat fading away (at some point; not right away), we could see improved US GDP growth. It could happen.

  3. Here is my worry:
    The GA runoffs deliver two senate sears to Democrats, paving way to Tax and Spend policies, on steroids, causing a sell off, early January. Just a bad feeling.

    1. Or a huge round of stimulus and infrastructure spending, then some clawback on taxes. Goal would be to support the non-1%, and that money typically gets spent.

  4. I’m trying to decide whether a pullback in VEU to ~Tuesday’s low constitutes a buying opp. It depends on the odds of a rally next week.

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