"Most people never run far enough on their first wind to find out they've got a second."
Over the past week, the market's upside momentum has cooled. There hasn't been enough selling to do damage to the uptrend that started right before the election, but there are some minor signs of pressure. The number of stocks hitting new 12-month highs is contracting and the strong rotational action that drove the market has cooled.
However, on the positive side, breadth has remained strong and many stocks just need a rest after the frantic run that has occurred since the election. The bears are focused on arguments that higher interest rates and unrealistic expectations about a Donald Trump rally will take a toll, but even they realize that we have positive seasonality into the end of the year.
While the 20,000 level of the DJIA received much unwarranted attention, it does have a psychological impact. It helps to create underlying support as many traders believe that the market is not going to top out until this round number is taken out. There will be a major change in mood when the 20,000 level is breached, and we need to watch for that.
One of the big issues into the end of the year is that the action is much more driven by considerations that have less to do with fundamentals and technicals and more to do with portfolio management. This is the time of the year when many moves are made for tax reasons. Some folks will look to harvest losses to offset gains that they have already booked, while others may have reasons to book profits this year.
In addition, it is the time of the year when adjustments are made in order to gain an advantage in the new year. Everyone wants a strong start and a good way to do that is to clear out some of the baggage that may have accumulated.
The indices haven't done much for a week now, and that is helping individual stocks to develop some better-looking technical setups. For example, I mentioned Impingj (PI) , Supernus Pharm (SUPN) and Kosmos Energy (KOS) yesterday. They are all in striking distance of technical breakouts and aren't difficult entries like many financial names such as Goldman Sachs (GS) .
There are quite a few folks rooting for more market weakness, mainly because they missed out and have performance anxiety. They can make some strong arguments for the bearish case, but this price action suggests that this market is simply consolidating. My view is that we are likely to have another push to the highs before the end of the year, but the end of the year games will cause some volatility in the waning days of 2016.
We have some early strength as the market ignores the headlines about murderous attacks in various places around the world. The overall mood in the U.S. is upbeat and the market has underlying support.