We are heading into the homestretch of 2019 and that means that trading is likely to become increasingly volatile. There are only six and a half trading days left in the year and many market participants will start to close their books early and enjoy the holidays. Volume will drop, but there will be many moves made that have very little to do with the fundamentals of individual stocks.
The main issue impacting the market on Friday will be option expiration and rebalancing of a number of indices at the close. Rebalancing will cause large-cap stocks that have outperformed recently, such as Apple (AAPL) and Microsoft (MSFT) , to be reduced as a percentage of the indices and move those funds into other stocks that are now underweighted in the indices.
There is no easy way to game this sort of action, as complex computer programs are used to accomplish the necessary tasks. Just stay aware that there is likely to be movement that has little to do with either fundamentals or technicals.
This market is already in a challenging position for many investors that are trying to decide what to do with uninvested cash. The indices are at all-time highs and have been on a rampage for two and a half months. The indices and many stocks are extended, but the momentum, fear of missing out and a reluctance to trigger taxable gains is keeping the trend going.
Anticipatory bears have been trying to call a market top for months now and they end up being squeezed and help the indices continue to scale a wall of worry. Negative news events like impeachment are being ignored and the market is content with the China phase one trade deal. There is no immediate headline threat that is likely to derail this market.
My game plan at this point is to ramp up efforts to make sure I don't give back some good recent gains. That means tighter stops and some profit-taking into strength. I'm going to be looking to take advantage of some of the year-end volatility with quick trades and will dig deeper for some January effect plays.
I have accounts at highs and I want to make sure they stay there as we navigate the last few days of the year. This has been a good market for trading of individual stocks, but it will likely be necessary to use shorter timeframes to deal with the end-of-year movement.
We have a positive open and new all-time highs again. A number of market strategists were subject to disdain for comments about a market melt-up, but it looks like it was a good call.
