The indices have had a furious run since October 3 and are hovering at all-time highs. It has been a great year for of gains, but the big question now is whether profit taking will occur before or after New Year's Day.
Obviously, there are many market players looking to delay taking taxable profits until next year and there is also a desire for money managers to close their accounts at the highest levels possible so they can earn the maximum fees.
While the pressures to hold this market up are quite apparent, there is great pressure on traders to anticipate what is going to happen next and to jump the gun by locking in gains. The likelihood of some profit taking to occur in the next week or so is so great that there is very likely to be some traders that want to jump ahead of it and that is what the main risk is for the next two days.
Not only do we have the tendency to anticipate profit taking, but there is also an inclination for some market players to go to very high levels of cash in preparation for the start of a new year. This sort of positioning is very common and often leads to some selling into the end of the year.
Another factor that comes into play right now is that there are more traders than usual looking for some holiday action. There is more speculative action in small-caps, especially with some folks hunting for "January Effect" plays. The biotechnology sector has benefited quite a bit from this action.
The net result is that we have an environment for the next two days that is subject to a variety of cross-currents and very likely to be quite random. There is going to be a round of profit taking soon, but whether it holds off until 2020 is the issue that we have to contend with today.
There is good action in individual stocks and plenty of opportunities for short-term trading, but the big picture is a coin toss at this point and the risk of some sudden movement is very high.
We have a flat start on Monday morning, but the biotechnology sector is looking active again as Axsome Therapeutics (AXSM) announces strong data for its migraine drug.