Holiday Trading Was a Dud, but Does It Set Up a New Year Rally?
Many stocks are now finding support while a number of interesting catalysts are occurring.
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Stocks finally bounced on Friday, which was the last day of the traditional Santa Claus rally period. Santa was a dud this year with the S&P 500 losing 0.5% and the Nasdaq dropping 0.7% during a period that has been positive about 70% of the time.
Much of the market has been struggling since the start of December when the post-election rally started losing momentum. Smaller stocks have been particularly poor performers, with a downtrend lasting about a month. The Magnificent Seven MAGS stocks have held up better but have been quite choppy.
Many stocks have become oversold, but the most interesting action has been aggressive speculative trading in single-digit small-cap names. Traders have been busy chasing various themes, such as robotics and quantum computing. Bitcoin IBIT and related stocks also came back to life after a pullback.
Many stocks have recently become oversold but are finding support now as we move into the new year. A number of interesting catalysts are occurring, such as the CES technology show in Las Vegas and the annual J.P. Morgan Health Care conference in San Francisco.
The primary question for active investors is whether there will be more rotation into the many lagging stocks. Although the indexes are not too far from their all-time highs, primarily due to the Magnificent Seven, only 45% of stocks in the market are trading above their 200-day simple moving average, which is a level often associated with bear markets.
This disparity in performance is nothing new. The market is setting records for concentration in a few big-cap names, but eventually, this will shift, as it always does. The question is how things unfold. Do the lagging stocks finally gain relative strength, or does mediocre performance in the mega-caps weigh on sentiment and hurt the broader market?
We will have to wait and see how things develop, but in the short term, it looks like there is some good stock-picking action and more interest in speculative names. Usually, new money comes into the market at the start of a new year, raising interest in stock picking.
Currently, this market favors stock pickers over index timers. The business media is missing the story, as traditional Wall Street prefers to look at the S&P 500 rather than the action in hundreds of individual stocks.
We have a positive start for equities Monday, but bond yields hit new highs this morning before reversing back down and are a major concern.
At the time of publication, Rev Shark had no positions in any securities mentioned.
