Buyers May Get Some Good Deals Mid-Month

On Black Friday, investors were seemingly more interested in the price of crude oil, which fell 10% to $66.15 a barrel, than the results of the busiest shopping day of the year.

Even though the Dow rose 0.5% and set another record closing high, it finished near the low of the day. The S&P 500 was up 0.3% but also closed near its low of the day. The Nasdaq managed to achieve a small gain of 0.1%, while the Russell 2000 ended with a 1.5% loss.

Wal-Mart Stores, Inc. (WMT), up 3%, led the Dow industrials on Friday and also for the month, gaining 14.8% in November.

Another big drop in energy stocks, with the Energy Select Sector SPDR ETF (XLE) off 6.4%, put a lid on the S&P 500. Chevron Corporation (CVX) fell 5.4%, and Exxon Mobil Corporation (XOM) was hit for 4.2%. For the month, CVX and XOM were the biggest losers in the Dow, down 9.2% and 6.4%, respectively.

At the close of Friday’s shortened session, the Dow Jones Industrial Average was up less than a point at 17,828, the S&P 500 fell 5 points to 2,068, the Nasdaq rose 4 points to 4,792, and the Russell 2000 was down 17 points at 1,173.

The NYSE’s primary market traded 647 million shares with total volume of 2.5 billion shares, and the Nasdaq crossed a total of 999 million shares. Decliners outpaced advancers by 1.6-to-1 on the Big Board, and by 2-to-1 on the Nasdaq.

For the month, the Dow and S&P 500 gained 2.5%, the Nasdaq rose 3.5%, and the Russell 2000 was unchanged.

S&P 500 Chart
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The S&P 500’s 17-month moving average chart indicates that the long-term secular bull market is alive and well. However, with November’s closing price 10.9% above the 17-month moving average — the second highest behind August’s 11.8% — it appears we may be due for some profit-taking. The December 2013 reading at 11% was followed by a sharp sell-off, which began on Jan. 23.

Russell 2000 Chart
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On Friday, the Russell 2000 was hit with a vicious closing sell-off.

IWM Chart
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Chart Key

On the iShares Russell 2000 Index ETF (IWM) chart, this resulted in a break from the resistance line of a bearish horn. This, along with diminishing volume, negative momentum and a MACD indicator that is in the bear zone, makes for a shaky start to December.

Conclusion

According to the Stock Trader’s Almanac, since 1950, December is the best-performing month of the year for the S&P 500, with a 1.7% average gain. And it is the second best for the Dow, also with a 1.7% average advance. The Russell 2000 has gained an average of 2.8% in December. This strong performance is known as the “Santa Claus Rally.”

But with a precarious end to November, it is doubtful that December’s record will stand. Even the S&P 500 had a daily reversal on Wednesday, which indicates that both large and small caps are in danger of a nasty sell-off.

We may still get a Santa Claus Rally, but I’d be cautious for the first two weeks of the month. It is clear that the market is overbought. However, by mid-month, we may find some top-shelf stocks in the discount bin.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


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