Although there was some weakness on Friday, positive Thanksgiving Week seasonality played out pretty much as expected. Typically, the following Monday is weak, but it is also the first day of a new month, which tends to have a positive bias mainly due to automatic inflows into 401k and retirement plans.
With the indices technically extended, both bulls and bears are looking for some sort of consolidation or corrective action to occur soon. What is missing is a convenient catalyst for some selling.
Although there is news that China 'insists' that tariffs be rolled back in order to complete a Phase One trade deal, the market is unconcerned in the early going. Market players seem to have grown numb to the headlines lately, but tariffs are scheduled to increase on December 15, which will be of particular importance. If tariffs are left unchanged, it is unlikely that any deal will be done this year.
What is helping to boost equities in the early going is stronger-than-expected PMI numbers from China. The index came in at 50.2 for November, which exceeds estimates of 49.5 and indicates that there is some minor growth taking place. There is talk that China is seeing signs of an economic turn and this number helps.
European PMI was also revised slightly higher and the U.S. numbers will be reported later today.
The market has had a remarkably one-sided run since early October -- and by almost any measure is in need of a rest. The problem is that the market doesn't think like a reasonable' person. It tends to do things that confound us. Logic and common sense just do not apply to market movement, but many folks never seem to understand that point.
The month of December will likely prove to be very interesting. The very large gains in the indices create a couple of dynamics that drive the action.
First, there is massive underperformance by many fund managers. It simply is not possible for most funds to keep pace with the indices when they go straight up. Many managers will be looking to produce some relative performance into the end of the year, which will likely produce some underlying support for high-beta stocks. The best way to play catch-up is to buy dips in the right stocks.
Another issue that will be prominent in December is tax planning. There will be an inclination to delay selling the big winners until next year while there will be increased pressure to dump the losers to offset any realized gain. The stocks that have performed worst this year will have additional selling pressure into the end of the year, but that should set up an interesting 'January effect.' This is likely to be a very important trading theme over the next six weeks and I'll have much more on it. The worst stocks will be in great position for rebounds once tax selling relents.
The overall market is at a tricky juncture here, as it is very tough to find good entry points, but there still are no signs of any notable weakness. I'll be watching for an intraday reversal to signal the possibility of some seller exhaustion. In the meantime, I'll continue to hunt for good technical patterns in individual stocks to buy.