The S&P 500 Is Struggling... But Here's the Good News
As we dig a bit deeper, things aren't nearly as negative as they seem.
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Market sentiment has become increasingly gloomy as the S&P 500 and the Nasdaq have fallen for five straight sessions. This is the longest losing streak for the indexes since April, but if we dig a bit deeper, it isn’t nearly as negative as it sounds.
While the traditional Santa Claus rally never materialized, there has been very strong speculative trading in small stocks. Single-digit names have been particularly active, and there is some good bounce action in names that have suffered from tax-loss selling pressure. Take a look at the AdvisorShares Pure US Cannabis ETF MSOS, for example, which was at an all-time low near the end of 2024 before a 15% bounce.
Early on Friday, there is bounce action again in the major indexes, although recent attempts at strength have consistently fizzed out. The Magnificent Seven MAGS have become choppy and inconsistent and are not currently viewed as a safe haven for excess funds.
The good news for traders is that the S&P 500 is now oversold, and much of the market is even more oversold than the indexes. The Russell 2000 IWM suffered a terrible December, but it has held support for two weeks now, and there has been good trading in individual stocks.
Next week, the end-of-year pressures, positioning, and tax moves will be over, and there will be a greater focus on fundamentals, technical patterns, and individual stock picking. Expectations for the Trump Administration will build into the inauguration on January 20.
One political issue that could impact on Friday is the election of a new Speaker of the House. If Mike Johnson does not win, it may create questions about the ease with which Trump will be able to quickly enact his first-day agenda. The market wants to see a unified Republican party at this point.
My primary focus is on actively trading some of the smaller stocks that are seeing more interest. There are signs that we may see a positive small-cap market as we head into the fourth-quarter earnings season in about five weeks. It won’t be smooth, but there is strong tradable movement in many stocks.
We have a mild positive open on Friday morning.
At the time of publictaion, Rev Shark was long MSOS.
