"Going so soon? I wouldn't hear of it. Why my little party's just beginning."
--Wicked Witch of the West, "Wizard of Oz"
Positive holiday seasonality worked like a charm on Tuesday, but will it continue to work today?
According to QuantifiableEdges.com, when the S&P 500 is over its 200-day moving average, as it is now, the day before Thanksgiving has produced positive returns 30 of 33 times. The only losing years were in 1995, 1996 and 2015.
Those are excellent odds, but market players are not unaware of this tendency, which is part of the reason the market was so strong yesterday. The strength was being front-run and now there is a greater chance that there will be some profit taking.
This is similar to a "sell the news" reaction when market players anticipate good news and then sell when the action news occurs. Sell the news has not occurred to the degree that many bears have anticipated in recent years. Events such as central bank announcements and earnings reports often have produced sustained upside even when positive news has been well-anticipated. This is likely a function of program trading, which is so quickly to buy any sell-the-news dips that may occur.
The issue today is whether the inclination toward buying the dip more than offsets the sell-the-news reaction. In view of the level of momentum we saw yesterday, the odds favor the bulls. Action such as yesterday creates very strong underlying support as those who missed the move still are looking for entry points.
Another related dynamic that favors the bulls today is the market's inclination toward V-shaped moves. Unlike the old days, the normal ebb and flow has been replaced by one-way action. There is such persistent underlying support that dips don't even have a chance to develop.
Regardless of what the indices do today, we can be certain that aggressive traders will be looking for pockets of momentum again. There were some standout moves yesterday in names such as Overstock.com Inc. (OSTK) , Square Inc. (SQ) , Riot Blockchain Inc. (RIOT) and Himax Technologies Inc. (HIMX) . Traders are hungry for more and they are in good spirits after a big day yesterday and the promise of a Thanksgiving feast tomorrow.
Today is not the day to dwell on potential market tops. Conditions favor the bulls and individual stock picking in particular. The Monday following Thanksgiving is typically weak, but we will worry about that later.
