A Classic Melt-Up

 | Dec 20, 2013 | 4:25 PM EST
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There has been talk that an end-of-year rally is so anticipated that it's unlikely to occur. The contrarian bears were hopeful, but they turned out to be dead wrong again.

It looks like traders have made positive seasonality a self-fulfilling prophecy. After the breakout move Wednesday and the mild consolidation Thursday, we saw classic follow-through action today. As I noted Monday, the last full week of the year has the best record of any week for positive seasonality. It looks like the stats are going to be even better next year.

It also ended up being a classic melt-up day. It started slowly and continued steadily higher all day as those on the sidelines were sucked into buying as the market ran away without them. Breadth approached almost 3-to-1 positive and there were more than 500 new highs with small-caps leading the charge.

The move was likely fueled in part by those who think the market is irrational to rally on the Fed tapering decision. They were caught leaning the wrong way and now we are building even more momentum rather than reversing.

Next week we have more positive seasonality, but volume is going to slow dramatically and things will likely be more random. We close early on Christmas Eve and have full days Monday, Thursday and Friday.

I'm carrying quite a few positions and I'm going to stick with the momentum as long as I can. I see no reason to believe that the action can't continue to run a bit more.

Have a great weekend and get that shopping done. I'll see you Monday.

Dec. 20, 2013 | 10:25 AM EST

A Little Follow-Through

  • The kind of positive holiday trading you'd expect after a breakout.

After a day of rest we are seeing good follow-through in the market. Breadth is running better than 2-to-1 positive with Twitter (TWTR), Google (GOOG), Amazon (AMZN) and high-beta big-caps leading the way. My stock of the week, 3D Systems (DDD), is also picking up some of the big-cap momentum as it breaks to a new high.

I came into the day with quite a bit of inventory, so I'm doing partial flips of Himax (HIMX), SolarCity (SCTY) and TWTR. I'm not seeing as much energy in small-caps as I would like.

A couple of names on my radar for potential adds on weakness are Canadian Solar (CSIQ), InterCloud Systems (ICLD), CytRx (CYTR) and Horizon Pharma (HZNP), but I'm not going to move too quickly.

Keep in mind that trading is going to become extremely thin over the next week, so there is a greater chance of random volatility. That can be helpful if you are trying to build positions but difficult if you manage things too tightly.

We are seeing exactly the sort of positive holiday trading you'd expect after Wednesday's breakout, but that doesn't mean you can be lazy.

Dec. 20, 2013 | 7:34 AM EST

Focus on the Money Flow

  • The action is in hot stocks and traders follow each other.

"Those who are blessed with the most talent don't necessarily outperform everyone else. It's the people with follow-through who excel." --Mary Kay Ash

After a breakout move on Wednesday and some healthy consolidation on Thursday, is the market setup for a year-end rally?

The bulls have been anticipating a good finish to a very strong year, but it has been choppy and a bit slow until the Fed decision on Wednesday. The bears tell us that the market is nuts to rally on the commencement of tapering by the Fed but the market was simply relieved to have the issue out of the way for now.

Interestingly, the economic data on Thursday was quite weak with a tick up in weekly unemployment claims and a mediocre Philly Fed report. That probably was helpful as it keeps tapering from proceeding too quickly.

This morning we have a downgrade in the long-term rating of European Union debt by Standard & Poor's, which is causing some pressure as the currency markets digest the move. But the focus of most market players is elsewhere right now.

What market players are focused on is trying to wrap up the year on a positive note. Funds want to see a strong finish in order to preserve the gains they have racked up, and many market players are trying to add a few points of relative performance. Individual traders are looking for some 'holiday' trading to help them celebrate the season.

The market is in good shape technically at this point. We had the big volume breakout move and now we are consolidating and building the foundation for another push. As I've said often this year, markets at their highs don't just fall apart and go straight down. They may stall or bounce around, but they tend to hold up and not immediately reverse regardless of the conditions.

The key in this environment is to focus on where the money is flowing. Traders follow each other into the hot stocks and that is where the action is going to be. Fundamentals don't matter much right now as this is an environment where the main focus is on momentum. A good example is Twitter (TWTR). I doubt any analyst is going to say it's a great value, but it is obviously a stock that can move and that is what traders are focused on. The stock bounced back Thursday and that pulled in the hot money, which is looking for some follow through. There is a combination of a short squeeze and aggressive momentum money moving it, which is what 'holiday trading' is all about.

Analysts are wrapping up the year so there isn't much news on individual stocks hitting which means traders will need to create their own action. Watch the screens closely and we'll see if we can grab some of the action as it develops.

The SPDR S&P 500 ETF (SPY) is ex-div today with a payout of $0.9803 per share, so keep that in mind as you look at the early indications.

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