After two weeks of market gains, we could get one more week. The markets are typically positive the week of Thanksgiving and that could give us one more week of gains. There is no guarantee but there is a good chance.
It will be the week after Thanksgiving that we should worry about a decent bout of profit taking. There are obvious qualifications. If the Nasdaq and S&P manage to break out to new highs this week, we could be off to the races and profit taking will be forgotten.
The S&P came within 0.26 points of making a new high on Friday but the selling was immediate when the index neared the 2,190 level. That could have been just some weekend event risk selling or it was sell the news profit taking because the old closing high was reached, or both.
The closing high is 1,290.15. The intraday high on Friday was 2,189.89. That is close enough to trigger sell stops by both shorts and longs expecting that 2,190 level to remain the historic high.
There is the potential for a double top at that level but the chart pattern is not suggesting that as a strong possibility. Normally both tops are peaked rather than rounded.
The S&P has support at 2,175 and 2,150. A breakout to a new high would cause short covering by those still in denial and it would cause portfolio managers to throw money at the market to keep it from running away from them.
The Nasdaq closed only 6 points below a new high on Thursday and made a new intraday high on Friday but the selling was immediate. However, on both the S&P and the Nasdaq the selling had no conviction and no volume.
If the Nasdaq can break out to a new high it would force portfolio managers to buy tech stocks again. They could not afford to have the techs start a new leg higher without owning a full spread of tech positions.
The Dow is holding at recent highs but it stalled at the uptrend resistance from November 2015. The Dow traded in an increasingly narrow range with Friday's spread only 63 points. That is very tight for the Dow.
The biggest point in the Dow's favor is the lack of selling after a +950 point gain the prior week. There should have been a couple hundred points of profit taking and it did not appear. The index actually had a pattern of higher lows all week.
The Dow looks like it wants to break out to a higher level.
The Russell 2000 has been the market leader with 11 consecutive days of gains. The Russell is about to hit resistance at 1,325 and that could cause some profit taking. This is too far, too fast and it is time to rest. This could be the Achilles Heel for the market next week. If the leader quits leading, the followers could slip back as well.
The economic calendar is lackluster and there will not be many traders around to watch the reports. Volume typically slows in Thanksgiving week and that could benefit the sellers this time around.
I am cautious about this week since the S&P and Nasdaq are near record levels. Without a breakout, they are likely to just wander aimlessly but not decline significantly. Next week could be the problem. The normal bullishness will have passed and the post election rally would be three weeks old, we hope. That would be a prime time for a bout of profit taking.
I do expect the market to go higher in December. We just need to get that profit taking behind us so investors feel comfortable establishing new positions. If we do get a dip over the next two weeks I would be a buyer.
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