Kass: Should We Prepare for a Very Near Term Selloff?

Why I anticipate some selling in the 2019 market leaders (and possible buying of market laggards) in the last two trading days of December.

The conventional and consensus view espoused in the media this month (and most definitely last week) is that the market is advancing because of the absence of sellers.

This might or might not be true.

However, after such a spirited market rise over the last three months it is not an unreasonable view to expect some profit-taking in the last two sessions of the year.

Let me explain why I anticipate some selling in the 2019 market leaders (and possible buying of market laggards) in the last two trading days of December.

Here is my rationale:

1. While individuals have few incentives to sell in calendar 2019 (and experience a taxable event) it is not the case for the large universe of non-taxable entities (retirement and pension accounts, charities and foundations, endowments, etc.). The later investor base can sell without a tax liability associated with the transaction.

2. The magnitude of the advance (and outperformance) in equities compared to the decline in fixed-income products prices throughout December has likely produced a large reallocation trade setup for month-end to buy bonds and sell stocks.

3. Any shift in short term market momentum could feed on itself (considering the large number of traders who are momentum-based).

Just some food for thought.

 

(This commentary originally appeared on Real Money Pro on Dec. 27. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass' Daily Diary plus columns from Paul Price, Bret Jensen and others.)

 

At the time of publication, Kass had no positions in any securities mentioned.