MrTopStep's Thanksgiving Equity Reflection

MrTopStep's Thanksgiving Equity Reflection

Taking a moment before the Thanksgiving break to examine the multi-year bull run in U.S. equities, reflecting on what has changed.

MrTopStep's Thanksgiving Equity Reflection
MrTopStep's Thanksgiving Equity Reflection Getty Images

Over the last few years as the U.S. indices hit new all-time highs, selling seemed to dry up, and the path of less resistance has been to go long. In fact, the few pullbacks and official corrections have seemed to come very quickly in an HFT (high-frequency trading) algo-driven slide that usually gets bought back.  However, the focus on “buying the dip” in the U.S. equity markets has perhaps been overemphasized.

The sell-off this autumn looked no different at the start. Sure, there were economic factors and news headlines to consider such as the trade wars and rising interest rates, but we have seen time and again in recent years that what seemed to be bad news turned out to be good news for U.S. stock markets.

Lately, however, even what is good news doesn’t appear to be all that good in the U.S. markets. Even though third-quarter earnings were the strongest in a few years, equities can’t seem to get a lift and hold.

Meanwhile, November usually initiates a seasonal period of strength, at least historically speaking. The slower holiday trade tends to give way to a bullish bias, as described in the old adage “never short a dull market.”  However, this year is feeling different heading into the Thanksgiving break. The Nasdaq made a new low yesterday and the S&P 500 was not far behind. Right now, the S&P 500 large caps, S&P midcaps, Dow Jones Industrial Average, Nasdaq and small-cap Russell 2000 are in negative territory for the year.

As fund managers begin to look toward the close of the year, the feeling is not one of optimism. Perhaps there is a greater sentiment to dump stock as the “Santa Claus” rally is starting to feel like it won’t come. Earlier this week, one of the most recognizable Wall Street banks made a projection that this bull market is over, showing statistics that indicated that the buy-the-dip trade is officially done.

We don’t know if the markets have seen a multi-year top or not. What we do know is that this type of price action has a way of confusing traders and getting the crowd on the wrong side of the market. Every time it seems the indices are about to breakout higher, they sell off; when it seems like the floor is going to fall out, they rally; and when it seems as though there is a lid to the rally, they keep on rallying.

MrTopStep suggests continuing to trade smaller and quicker through the end of the year. This is supposed to be a family-friendly holiday season, but these markets are not worth a coal in the stocking. Trade safely and enjoy the holiday break that begins tomorrow.

Today’s Economic Calendar:

  • MBA Mortgage Applications 7:00 AM ET
  • Durable Goods Orders 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Existing Home Sales 10:00 AM ET
  • Leading Indicators 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • 3-Month Bill Announcement 11:00 AM ET
  • 6-Month Bill Announcement 11:00 AM ET
  • 2-Yr FRN Note Announcement 11:00 AM ET
  • 2-Yr Note Announcement 11:00 AM ET
  • 5-Yr Note Announcement 11:00 AM ET
  • 7-Yr Note Announcement 11:00 AM ET
  • 10-Yr TIPS Auction 11:30 AM ET
  • EIA Natural Gas Report 12:00 PM ET
  • Baker-Hughes Rig Count 1:00 PM ET

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