Mid-week market update: It is said that there is nothing more bullish than a stock or a market making a new high. The S&P 500 made a marginal all-time high yesterday and pulled back today. Yesterday’s high was more convincing as both the Dow and equal-weighted S&P 500 decisively broke out to all-time highs. This is an indication of strong breadth and bullish price momentum.
Supportive breadth
Other breadth indicators are supportive of the advance. Take a look at net 52-week highs-lows for both the NYSE and NASDAQ. Such displays of strength are evidence of broad-based momentum.
Supportive positioning
There are also signs that the post-election rally isn’t over. Nomura reported that traders are buying melt-up protection, which makes dealers short gamma to the upside. Translated, any upside price momentum would set off a scramble by dealers to buy the stock market to hedge their positions. As a reminder, a similar episode of dealer-driven buying frenzy occurred during the GameStop short squeeze and melt-up of 2021. I would caution, however, that the U.S. equity is far more liquid than GameStop and the magnitude of any move today is likely to be far less.
Supportive seasonality
As well, Ryan Detrick pointed out that late November tends to be one of the most seasonally positive periods of the year for stock prices.
My inner trader remains bullishly positioned. The usual disclaimers apply to my trading positions.
I would like to add a note about the disclosure of my trading account after discussions with some readers. I disclose the direction of my trading exposure to indicate any potential conflicts. I use leveraged ETFs because the account is a tax-deferred account that does not allow margin trading and my degree of exposure is a relatively small percentage of the account. It emphatically does not represent an endorsement that you should follow my use of these products to trade their own account. Leverage ETFs have a known decay problem that don’t make the suitable for anything other than short-term trading. You have to determine and be responsible for your own risk tolerance and pain thresholds. Your own mileage will and should vary.
Disclosure: Long SPXL