"The only way to keep from going backward is to keep going forward. Eternal vigilance is the price of success."
-- Charles F. Haanel
What will it take to upset the persistent market momentum? That is the question as we approach the final month of the year.
Market timers keep looking for a news event that will trigger a reversal, but nothing seems to bother this market. A North Korean missile launch and a comment by President Trump that "we will handle" the situation caused a reaction that didn't even last an hour before buyers jumped in on news that tax policy was moving forward in the Senate.
A number of bears have been predicting that difficulties with tax policy would be a catalyst for a turning point, but Congress has progressed quite quickly and the market simply wants a bill passed. The details have been shrugged off as secondary to showing that the Republicans actually can accomplish something.
The other news event yesterday was the hearing on the nomination of Jerome Powell as Federal Reserve chairman. His comments indicated that he was on track to normalize interest rates, which boosted banks. Market players rotated out of the big-cap FAANG names and into financials, which is helping to keep the recent rally running.
The indices are a little extended technically, but that isn't a major problem as the rotation under the surface is preventing many individual stocks from becoming overheated. Some of the stocks with the hottest momentum during Thanksgiving week have been correcting the last couple days and that is helping to create buying setups.
Cryptocurrency and blockchain are in a frenzy phase right now, with very loud debates about the potential for a crash as the group has made a parabolic move. Risk is obviously quite high, but it is extremely dangerous to underestimate how long this can last. It is a good thing for the bears that there is no easy way to short bitcoin as that would add even more fuel to fire. I'll be looking for some trades in this group as the volatility continues. However, as I discussed yesterday, I'm avoiding predictions of tops and commentary on those who are "true believers" that cryptocurrencies are the start of a new world.
The main challenge of this market right now is navigating the rotation that is taking place. We have the Dow Jones Industrial Average (DJIA) outperforming while the Nasdaq 100 ETF (QQQ) is lagging. The Russell 2000 ETF (IWM) is doing well because of strength in small banks, but there is daily rotation in other groups such as biotechnology, oil, China-related names and technology.
My game plan is to continue to embrace the momentum in the indices by staying focused on bullish setups in individual stocks. A shorter-term time frame is preferable due to the rotation and because of the high level of volatility in the more speculative cryptocurrency names. Names such as U.S. Global Investors Inc. (GROW) , Square Inc. (SQ) and Overstock.com Inc. (OSTK) are high on my list of trading vehicles, but there are also more conservative setups such as my Stock of the Week, Camping World Holdings Inc. (CWH) , and Twitter Inc. (TWTR) .
Stay nimble, vigilant and open-minded. Conditions are good for traders, but market risks are high.