Persistent selling throughout yesterday’s session fueled a steady intraday downtrend that caused several of the broad-based stock indexes to break key technical support levels. After gapping lower on the open, the equities markets headed south and never looked back. The Nasdaq Composite tumbled 2.3%, the S&P 500 1.5%, and the Dow Jones Industrial Average 1.3%. The small-cap Russell 2000 fell 2.0%, as the S&P Midcap 400 lost 1.7%. Like the previous day, all of the major indices closed at their intraday lows.
Higher volume accompanied yesterday’s sell-off, causing both the S&P 500 and Nasdaq Composite to register a bearish “distribution day” indicative of institutional selling. Total volume in the NYSE swelled 13% above the previous day’s level, while volume in the Nasdaq edged just 2% higher. Since last week’s peak, the Nasdaq has already flashed three days of institutional selling. The S&P has twice declined on higher volume. Aside from recent breaks of pivotal support levels, the stock market’s price to volume relationship alone has turned bearish rather quickly. Until we begin seeing higher volume gains (“accumulation days”) again, it remains risky to trade against the negative institutional money flow that is plaguing the market.
The end of the year is a great time. If you’re like me, you’ll enjoy the holidays, pig out on great food, and spend some quality time with family. There’s also that end-of-the-year examination of how our goals went this year and what adjustments we need to make for next year.
As we enter into the final couple weeks of the year, keep in mind that things are as tricky as ever. Cross-currents of all kinds are swirling during this month that aren’t seen at any other times of the year. Performance anxiety of fund managers, rebalancing of indexes, tax loss selling, and a host of other things will motivate market participants in unique ways.
Considering the already wild market environment we find ourselves in (the past few weeks have truly been volatile), December might just add fuel to the fire of confusion.
Let me caution you as you review where your year stands not to make bold year-end bets in order to reach your goals. Stick with your game plan, trade the good setups when you see them, but mostly just remember to take what the market offers. Don’t increase your size or take sub-standard plays for the sake of finishing big and trying to go out on a high note.
I’m a positive thinker and I love to trade. I like to set lofty goals and work my tail off to reach them. But these next couple of weeks aren’t the time to go big or make unusual plays. Cruise into the New Year with your objectivity intact, and focus not on what you need between now and December 31st, but instead on what you’ll want to aim for once January 2nd arrives.
Just don’t let December’s whirlwind of cross-currents throw you off balance.
Happy Holidays!
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