The first trading day of the new year is triggering some profit-taking in 2021's big winners. The money is rotating into lagging names, but it is not a smooth ride. In the S&P 500, names like Quest Diagnostics (DGX) , West Pharmaceutical Services (WST) , Danaher Corporation (DHR) , and Fastenal (FAST) , which were hitting new highs recently, are getting sold while some of the laggards like Citibank (C) , ViacomCBS (VIAC) , and Carnival (CCL) are rising.
We're seeing bounces in many of the secondary names that lagged, and the action has a better feel to it, but it would be a mistake to expect straight-up moves from here. Charts still need to develop better and build strong support. Earnings season starts in a few weeks, and that will be a catalyst for the names with solid fundamentals that have suffered in the rotation into big caps.
This is the time of the year when analysts issue their year-end targets for the S&P 500. For example, Goldman Sachs is expecting that it will hit the 5100 level. These analysts typically set a target of 5% to 20% over the prior year, and sometimes they are lucky and are close.
The problem with this game is that from a trading and investing standpoint, the end-of-the-year target isn't nearly as important as how the market gets there. Do we have a deep correction and then a big rally, or maybe there is a blow-off top and then a fade into the end of the year. Navigating that action is what is going to determine your success to a far greater degree than trying to guess where the S&P 500 finish.
I'm feeling very good about how we are starting to see some better action in the many names that have lagged, but this is very early stage, and there is much work to do before we have better technical conditions.
