Very much in line with what I discussed in this column one week ago and with historical tendencies, U.S. stocks during last week’s Thanksgiving week continued to push higher in a low volatility fashion. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY), the Russell 2000 as represented by the iShares Russell 2000 ETF (NYSEARCA:IWM) as well as the Nasdaq 100 as represented by the PowerShares QQQ Trust (ETF) (NASDAQ:QQQ) all closed at fresh year-to-date and all-time highs.
Will stocks ramp higher into year-end in a straight shot from here?
At this stage in the late-cyclical bull market any bullish thesis is a possible outcome, but seasonality patterns do suggest that a little pause in the first week or two of December looks likely before another push toward the Christmas holiday and into year-end can unfold.
As discussed in this column last last Monday, I still prefer small caps into year-end versus the S&P 500, relatively speaking. My reason for this is that while the IWM took a much-needed pause during the month of October and parts of November, the SPY continued to push higher in good part due to a relentless bid in a few mega-cap technology stocks.
I do think that a few of these mega-cap technology stocks like Amazon.com, Inc. (NASDAQ:AMZN) could keep the bid into year-end (or at least not completely fall apart) due to under-performing fund managers having to allocate to these names, but relative performance could start to weaken.
Also in last week’s missive and indeed since September in this column, I have pointed to the likelihood of a good rally in the price of oil as represented by the United States Oil Fund LP (NYSEARCA:USO). Last week the USO ETF closed higher by about 3.8%, thus a nice continuation move higher and in line with my thoughts and positioning.
Having said that and while it’s been a very profitable trade for my clients and myself, light sweet crude oil is now getting very close to my $60 upside target. Momentum could see oil squeeze higher toward $65 possibly into early next year, but through the lens of risk management I am happy to start taking at least partial profits around current levels.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
The Nasdaq 100 QQQ ETF meanwhile and courtesy of another push higher last week has now arrived even more clearly at the very upper end of the two-year range. Trend followers would be wise to reduce position size while chart chasers and breakout traders may want to consider reducing trading position size given the current juncture.
In summary, after another profitable week for the bulls last week and in line with my Q4 trading plan, stocks may be in need of a pause before a potential next marginal push higher into year-end can unfold. Taking at least partial profits from ‘trades’ makes sense while remaining bigger picture broader market long exposure.
Check out Serge’s Trade of the Day for Nov. 27.
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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