Last week, both bulls and bears agreed that the indices needed a pullback. The bulls were hopeful that overbought conditions would correct and that a dip would provide a good setup for a strong finish to 2019.
The indices cooperated nicely and delivered the biggest drop since early October. It would have been better if the selling caused a higher level of fear but it was enough of a drop to quickly entice some buyers that have been looking to buy weakness. China trade news provided convenient excuses for both the drop and the rally but the news flow correlated very well with the desired technical patterns.
This morning there is upside follow through and what is most interesting is that there is no China trade news to explain the action. There is news that oil is jumping as OPEC meets and works on a deal for output cuts but no mention at all about the trade negotiations.
The question for us to ponder is whether that three-day selloff was all that is needed to clear the way for another run at all-time highs. Fear of missing out is already bubbling up again. There has been massive underperformance by fund managers this year that have been unable to keep pace with the huge gains delivered by the S&P 500. Many managers will be trying to produce some relative performance in the next three weeks but it won't be easy.
Tax considerations always favor that the market holds up to the end of the year. The folks that are sitting on big gains in big caps like Apple (AAPL) and Microsoft (MSFT) will want to delay tax consequences until January. However, the laggards will be more likely to be dumped to help offset big gains that are being recognized. That should create some very interesting trading in January.
At the moment, positive price action is back on track but traders will be watching the December 15 date very closely. Tariffs are set to increase that day and whether they do or don't will be the key indicator of the state of the China trade negotiations.
On Wednesday there were some excellent pockets of stock picking as market players hunt for ways to put some cash to work. Biotechnology was particularly hot. One name I've mentioned very frequently, Aurinia Pharmaceuticals (AUPH) released very good data for its lupus drug and is more than doubling this morning. I've sold some of my position but will be looking for new entries as it develops from here.
This continues to look like a favorable market for trading and stock picking in particular. Many traders have high levels of cash now and are searching for some new inventory.