Previewing Wednesday

Tuesday was a big day for the US stock market with the S&P +1.29%, Nasdaq +1.25% and Russell +2.4%. In addition, breadth was great with 405 advancers to 95 decliners on the S&P 500. The S&P 400 Midcap Index was even stronger with 373 advancers to 27 decliners and the S&P 600 Smallcap Index similar with 556 advancers to 44 decliners.

On top of strong breadth, it was a Trend Up Day with the market getting stronger by the hour. Ian McMillan (@the_chart_life) had a great chart showing Advancers to Decliners on the NYSE by hour which shows the market getting increasingly strong as the day went on.

It’s early but let’s do a quick preview of today’s (Wednesday) trading. Europe is up 1-2% an hour and a half into trading and the US Futures have bounced from essentially breakeven to marginally up as a result. Having closed yesterday at 3,695, we will likely be testing the Resistance Zone between 3,697 and 3,712 labeled by day trading wizard Scott Redler yesterday (Tuesday) before the open.

Even prior to the yesterday’s strength, the market was massively overbought, especially the Russell. I led yesterday’s morning blog with Arthur Hill’s chart showing the IWM more than 30% above its 200 DMA. Obviously, after yesterday’s +2.4% move, it is even more technically extended.

In fact, the Russell is now up more than 95% from a 52 week low for only the 8th time since 1979. However, it has been negative all 7 previous times 3 months later with a median decline of 4.8% (Source: Sentiment Trader, “In record time, small stocks almost double”, December 15).

Sell the vaccine 1Q21 – Michael Hartnett, Chief Investment Strategist, B of A (quoted in Jeff Cox, “B of A says sell stocks on the vaccine as overconfident investors dump cash for equities”, CNBC.com, December 15)

Hartnett said that because cash levels in B of A’s monthly Fund Manager Survey fell to 4% triggering a sell signal as the typical S&P return for the next month is -3.2% when cash levels fall that low.

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