Tuesday, January 3, 2017

Buying in the New Year

You can interpret a lot from the action on Friday, December 30.  First, you had a gap up, which tells you that European stocks were not being liquidated, and have very little fast money in them.  Second, you had the fear of January selling/terrorism/rebalance all rolled into one big sell fest.  The selling didn't feel organic.  It felt more like profit-taking ahead of January and hedging.

Obviously, it being December 30, the last trading day of the year, you had a lot of mechanical selling going on, to make the books look cleaner, buying Treasuries and selling stocks.  And since it is a less liquid time of year, there wasn't enough volume willing to take the other side unless done at a decent discount.

Third, you didn't close at the lows, like you did in the last trading day of 2014 or 2015.  That tells you a lot.  It tells you that the selling dried up and the buyers were more aggressive at the closing bell than the sellers.  Sure, you still closed near the lows, but that bounce in the last 5 minutes of the trading session told you that there wasn't much selling leftover to be done in the next trading session.

I may be trying to take too much meaning from one session, but it collaborates what I heard on CNBC and social media.  There is quite a bit of apprehension to embrace this rally.  I heard many more looking for a pullback than a continuation of the rally for January.  And when you hear that, it means the fast money has already sold down a lot of their equity holdings.  If the equity inflows into the US continue, like I expect, that will provide the firepower to take this market to new highs, as the fast money jumps along to ignite the flames.

Oil looks strong, despite the stronger dollar, which will help the energy space.  We all know the small caps are strong, with the Trump economic plan benefitting them the most.  It looks like bonds have found a floor, which will stem the selling in the dividend names.  I am no raging bull, and I am waiting for a spot to short at a later date, but it seems likely that we will be going higher as we climb the wall of worry.  By the time Trump gets his economic plan announced in Q1 or Q2, that wall will have been obliterated.

Looking for higher stock prices in the first few weeks of January.

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