Why a Pullback Will Set the Stage for a Strong December

Hawkish comments from the Bank of Japan, soft economic data in China, and further weakness in Bitcoin  (IBIT)  are causing weakness on Monday morning. Investors enjoyed classic positive seasonality during Thanksgiving week with four straight days of gains, but Cyber Monday tends to be seasonally weak.

After five straight days of gains for the S&P 500 following the valuation scare in the AI sector, stocks are slightly extended and overbought, so some corrective action is not only unsurprising but also technically healthy.

Bitcoin has recently been one of the worst-performing groups, but it still managed a weak bounce last week. What is particularly interesting is that investors have moved back to gold  (GLD) and silver  (SLV) , which are traditional safe havens. The narrative that Bitcoin would replace precious metals as a haven asset has apparently lost its appeal for now, despite growing institutional support for cryptocurrencies.

Weakness in Bitcoin tends to spill over into speculative stocks and the Magnificent Seven  (MAGS)  as well. However, lately, there has been strong rotation into biotechnology, retail, and other non-technology groups. I expect traders to look for entries in those groups on softness.

Technically, the overall market picture looks promising. A pullback here after the big run last week is needed. The key will be holding above the 50-day simple moving average and other technical levels. 

The move following the AI valuation issue was "V"-ish, and that is not a good setup for further upside. There needs to be some consolidation to set the stage for December, which is, on average, the best month of the year.

I’ll be looking for some entries on pullbacks, especially in the biotech sector, and expect to see dip buyers lurking about.

At the time of publication, Rev Shark was long IBIT.