It is that time of the year where we usually see a chase for performance. It is when underperforming funds try to catch up to their benchmarks to boost their returns. But this year seems to be a challenging mountain to climb for many hedge funds and long only’s.

As of the end of October, the Eurekahedge Hedge Fund Index was up 9.51%, with the Long-Only Absolute Return Fund Index up 13.8%, well behind the S&P 500’s gain of 22.6%.

Believe it or not, 2018 was very similar to 2021 in terms of the setup going into the final two months of the year. After the S&P 500 peaked in mid-September and early October of 2018, the market had a rocky finish to October. It left the S&P 500 up around 1.5% at the end of October, with the Long Only Absolute Return Fund down about 8.5% and the main Hedge Fund Index down 1.6%.

November of 2018 started strong for the S&P 500, with the index climbing around 4% from Nov. 1 through Nov. 9. After that there was a pullback with one final attempt to march higher, and then by Dec. 3, the market turned decisively lower, dropping 15.75% by Dec. 24. The chase for performance turned into investors choosing to take the market down to them.

By the time it was over, the Main Hedge Fund Index had finished the year down 3.55%, and the long-only fund was down 10.5%, while the S&P 500 finished lower almost 6.6%. Suddenly the considerable underperformance of 2018 by funds turned out to not be so horrible.

I bring this up because everyone in 2021 dreams about higher highs and a path to 5,000 on the S&P 500. However, with funds underperforming by a much wider margin than in 2018, who’s to say that instead of a chase for performance into the year-end, funds don’t decide to take the market down and bring the S&P 500 to lower levels? With a massive push lower as well.

Yes, third-quarter earnings were better than expected, but upward earnings revisions have not driven this rally. The entire rally has been driven by multiple expansion. The PE for the next twelve months has risen to 21.8 from 20.3 on Oct. 12. It tells us the solid third-quarter earnings season hasn’t resulted in analysts lifting their outlooks for the next twelve months.

Additionally, the S&P 500 futures may have completed a wave five top on Friday morning when the futures climbed to 4708.

Meanwhile, the RSI on the S&P 500 cash market has now reached 76.4, a very high level and one that doesn’t happen very often. It also seems on the technical chart that a potential evening star doji formed on Friday, which is a bearish indicator.

Not only that, but of the 7% gain that came in October, 3.5% of it came from just eight stocks, according to data from S&P Dow Jones Indices. That compares to the top 8 stocks contributing 9% of the total 24.0% year-to-date gain through the end of October. It tells us that while the market is still rising, the breadth of that rally seems to be getting more concentrated.

I would think that given this crazy move higher, a pullback to 4540 happens this week. Meanwhile, please keep an open mind to the potential for investors to pull the market back down to them instead of chasing it higher.

Amazon (AMZN)

Amazon has been dead money since July 2020, and I don’t see that changing after the company reported quite possibly one of the worst quarters I have seen from them in a very long time. The fourth-quarter guidance was slower top-line growth and higher cost, generally a death sentence for growth stocks.

The stock did move higher this past week, but failed at resistance around $3,520, and I fully expect the stock to continue to be dead money until they report the fourth quarter at a minimum.

The Trade Desk (TTD)

The Trade Desk will report results on Monday. I saw some bearish options betting on this stock early last week, and I had noted that Roku (ROKU) would be a good indicator for where this stock would go. The put buying implied the stock was trading at $67.50 or lower by Nov. 19. The stock ended up getting pretty close to my target before results, dropping to roughly $68.50 on Friday. There is some decent support, around $65.50.

Nvidia (NVDA)

Nvidia is in the middle of an epic gamma squeeze, and it won’t last; it never does. The stock has been up nearly 49% since Oct. 5, and its market cap is now almost $750 billion. The stock currently trades 64 times 2023 earnings estimates and 25.6 times sales. I would not be surprised to see this stock trading back in the $230s over the next few weeks.

General Electric (GE)

I have been expecting GE to break higher for some time now, with $115 the target. The overall pattern looks bullish, and the trend in the RSI supports a higher move. I’m still patiently waiting.