We continue to dodge bullets that have the potential for impacting the market.
Last week it was the ECB and their play to extend QE. They could have announced an end to stimulus and caused some market instability. The week before was the Italian vote and the resignation of the prime minister. Every week there is some new event the market frets over and then ignores the news when it appears. Next week of the FOMC announcement on Wednesday. The market appears to have already priced in a rate hike but the key will be the guidance. The Fed could take this opportunity to slip in some hawkish guidance and the market could react negatively.
The Dow 20,000 target could also be a trip wire that triggers selling. It is a very large round number.
We could continue to dodge bullets for a couple more weeks but eventually one will connect. It is only a matter of time and the selling could be violent if we make it to January before the hit occurs.
This is quadruple option expiration week. That is always good for some extra volatility and volume.
The S&P went into hyper drive last week after a week of profit taking. Apparently, investors were waiting to buy the dip and they did it in volume. The lowest volume last week was 7.1 billion shares on Tuesday and Wed/Thr were 8+ billion.
I cannot conceive of what would push the market significantly higher but never say never. Support is well back at 2,210 and that would be a -50 point drop.
The Dow gained nearly 600 points for the week or +3.1%. Support on the Dow is well back at 19,250 and it closed at 19,756. The Dow 20,000 target is likely to be hit before Christmas and I fear it could be a significant sell the news event. We are simply too overextended to continue rising at the current pace without a rest.
The Nasdaq 100 is the weakest of the tech indexes and it closed right at strong resistance at 4,900 on Friday. Amazon, Facebook and Netflix did not take part in the rally. They continue to lag and that is holding the NDX back from making a new high. If the big cap tech stocks suddenly fell back into the rotation and began to make significant gains, the breakout to a new high on the NDX could actually help power the broader market higher. I am not holding my breath.
The small cap Russell 2000 index may be peaking. The minor 1.7 point gain on Friday after a 20.1% gain since the election, could be an early sign that the rocket is running out of fuel. Some small cap stocks have risen 30% to 40% since the election. That cannot continue without a decent bout of profit taking.
The calendar for the week is highlighted by the FOMC rate decision and Yellen press conference on Wednesday and the quadruple witching on Friday. With the Fed announcement on tap the other economic reports are likely to be ignored.
When the S&P futures opened for trading on Sunday evening, they were up +10 points early in the session. By 9:PM they were negative. That is not a good sign. This could reverse by morning but the bloom is already off the rose.
The non-OPEC producer meeting in Vienna produced a lot of headlines but very little substance. The crude futures spiked to $54.50 early in the session but pulled back -$1 very quickly but they are still up more than $2. There could be a sell the news event on crude on Monday once all the shorts have covered.
I believe we are entering a period of high risk for the market over the next five weeks. We need to be aware of the potential for market instability and not be caught off guard.
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