Is This a Market Running Out of Steam or Just Healthy Consolidation?
The resolution to the mixed action will likely happen by the end of this week.
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The action was mixed on Tuesday, with breadth running negative as the Nasdaq 100 QQQ gained a few points and the Russell 2000 lost ground. However, the action illustrates something I’ve written about often, which is that strong markets tend to stay sticky to the upside. When there has been a move as powerful as we saw in November, the indexes don’t just suddenly collapse. They have good support, and there are buyers of minor weakness.
Those with a bearish bias view this as a stalling action that suggests that the buyers are running out of steam and that a deeper pullback is about to begin. Those with a bullish bias view this as healthy consolidation, which allows those with a shorter time frame to lock in their gains and for stronger hands to build up their position.
The resolution of this mixed action is going to depend on the reaction to economic news that will hit during the rest of the week. Fed Chair Jerome Powell has a public event on Wednesday, and then there will be the very important November jobs report on Friday. The market is still anticipating a rate cut at the next Fed meeting later this month, but the odds have fallen from a near certainty.
Many individual stocks can benefit from some flatter action, but overall technical conditions remain strong, and there are over 600 names at new 12-month highs even though the indexes didn’t do much.
It continues to be a market that favors stock pickers, but it is necessary to be more selective while we go through a consolidation process.
Have a good evening. I’ll see you Wednesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
