The senior indexes finished the day with solid gains, breadth was four-to-three positive, and over 850 stocks were hitting new highs, but there was some rotational action under the surface, as well as some sharp drops in a few places on end-of-the-year pressures.
Most notably, there was some rotation out of small caps as shown by the Russell 2000 fund (IWM) and back into the FATMAAN names. The big-cap growth names have been lagging for a while, but Amazon (AMZN) saw some inflows and the Nasdaq as shown by the Invesco fund (QQQ) outperformed small-caps for the first time in a while.
With just a few days left in the year, there is quite a bit of trading that has little to do with fundamentals. Stocks are sold for tax reasons, to lock in a big gain to harvest tax losses, and just for positioning for the new year. It is difficult to know the exact motivation of the buyers and sellers, since it is all highly subjective.
Despite the mixed action under the surface, the high level of speculative action continued. I have around 35 stocks that are up more than 20% on Monday on my screens, which is higher than usual and only three of them are priced higher than $20. During the holidays, traders often focus on chasing lower-priced stocks and there was some evidence of that now.
We have three more days of trading to end the year and it is important to be on the alert for some abrupt drops. They can be good opportunities, but they can catch you by surprise, as they aren't triggered by anything specific.
Holiday trading can be very upbeat and cause some stocks to move up fast, but it also can produce some abrupt drops and reversals. Don't be too complacent, as we wrap up the year.