On Monday the indices and a number of individual stocks suffered some selling for the first time in weeks. The selling looked more strategic than anything else and is likely to continue to some degree here on Tuesday. The thing that is motivating sellers is extended technical conditions combined with end-of-the-year positioning.
Typically a bout of selling after a strong uptrend is not likely to be a top. The uptrend creates a large supply of buyers who have underperformed and are looking to buy weakness. They don't want to miss any more of the upside and they tend to provide strong support the first few times the market pulls back. It is only after a number of failed bounces that a top forms. This is why it is often said that a top is a process rather than an event.
Timing of the market right now is particularly difficult because there are so many other considerations that come into play. Most notable are taxes and positioning for the New Year, but there are also inflows into retirement plans and some reallocation between bonds and equities. The fundamentals of individual stocks and the technical conditions are secondary to many of the other issues that move stocks.
The most important thing to keep in mind right now is that it isn't unusual for there to be some sharp bouts of selling. We have had years that end with some strong selling pressure and we had years where there has been some strong selling right after New Year's Day. There really is no way to know if it will occur again, but if we stay vigilant we should be able to navigate it effectively.
Another issue that could impact the market is that there is talk that the Phase One China deal will be signed in the next week or so. While this isn't a big surprise to the market, it is an event that will likely trigger some responses from the market. Many bears will view it as a potential "sell the news" event.
The action here on New Year's Eve is likely to be some pushing and shoving as traders and investors position for the kickoff of 2020.It has been a year of big gains for the indices, but that creates much anxiety for those who were not able to keep pace with their benchmark indices.
The fourth-quarter earnings season will start in about two weeks and I'll be focused on positioning for some strong reports. In the meanwhile, I expect choppy action and some consolidation.