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Steady As She Goes December 5, 2020

Posted by Tom in Thoughts.
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December 4, 2020 – Last Friday the NASDAQ Composite Index (below) broke above the previous high / peak of 12074; OK good, but we needed confirmation. We got confirmation on Monday of this week with a test of that 12074 level at the low and then a higher close.

click to enlarge chart

The rest of the week was “up and away” with volume above average. Obviously the markets are driven by optimism about the economies of the world improving over the next 6-12 months, so great, right? Well, absolutely good news but two things loom. 1) Tax selling in the weeks ahead: The likelihood of taxes going up next year and this year being pretty good can mean investors will “ring the cash register”. Watch for selling in the coming weeks, it could be minor or something worse. 2) The market is priced for perfection: That is the valuations of many stocks are getting ahead of their revenue growth. The Price to Earnings ratios (P/E ratio) are near all time highs. That leaves the market open to disappointment, but that would likely be with 4th quarter earnings early next year.

For the time being we have no real choice but to follow the rising trend and watch for signs of a reversal. I am watching the VIX put/call indicator for signs of professionals buying put options for protection. Right now there is far more call (bullish) buying that put buying (bearish). But that can change very quickly.

Here’s a pie chart that I have been working on that needs some refinement, but the idea is to show what sectors are moving in the near / short term. (I’ll try to rearrange and add some data to it soon.)

And here is a table showing the same sectors but in an indicator weighted format:

So that’s it for this week. Have a good week and please stay safe ! 🙂

……………… Tom ………………

Price chart by MetaStock; pie chart & table by http://www.HighGrowthStock.com. Used with permission.

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