Be careful

S&P500 daily at end of day

End of Day Analysis:

It was another interesting day. Weakness in European markets knocked us down at the open, but we came roaring back midday. Even though we closed in the red, we were well off the early lows. It is always encouraging when selling stalls and rebounds, instead of accelerating lower.

2,075 is resistance as the market struggles with this level, but the longer we hold near it, the more inevitable it becomes we will break through it. At this point in the year, fundamentals no longer matter as big money jockeys for position into year-end. While the S&P500 is up a very respectable 14% for the year, it left many cynical managers in its wake. Some never believed in this rally, others were flushed out in October’s dip under 1,900. Both groups are trying to figure out how to repair the damage before sending out annual reports to their investors in a few weeks. While they would love to see the market pullback to 2,000 before then, all too often the market does the exact opposite of what the most desperate traders are praying for.

Source: AAII 12/4/2014

The AAII sentiment survey took a nosedive this week. Bullish sentiment plunged 9.5% even though the market remains within a fraction of all-time highs. This shows many investors are afraid of heights and reluctant to embrace this rally. But all too often today’s holdouts become tomorrow’s chasers. But not to get too far ahead of ourselves, bulls finally overtook bears on Stocktwits’ SPY sentiment gauge this week.

While momentum is higher, end-of-year buying is an artificial tailwind that will vanish January 1st. Rather than put new money in this market, we should be thinking about taking profits. Breaking 2,075 could trigger one last short-squeeze, pushing us up to 2,100 before finally running out of steam. Its been a great run, but we need to consolidate recent gains.

Source: Stocktwits $SPY 12/4/2014

Friday we have employment. While it gives the talking heads something to obsess over, the market hasn’t cared about employment since we started showing positive numbers several years ago. Hit, miss, or exceed expectations, it hasn’t mattered as this market rallied through it all. Outside of some intraday volatility, this report will be ancient history by the close.

Jani