Testing Support

End of Day Analysis:

Stocks slipped to 2,050 support on the first day back from the holiday weekend. Journalists and talking heads are paid to come up with a reason for every market gyration. Real or imagined, producers and editors don’t care as long as it makes good copy. And today we were told the market sold off on poor Black Friday sales and weak economic numbers out of China. Maybe the truth is a lot more boring. Maybe we slipped to support for no other reason than a minor imbalance between supply and demand following an impressive run of up-days.

Traders know stocks cannot go up every day, but anytime we slip a few points, they start predicting this is the next collapse. Today’s elevated volume, the highest in nearly a month, shows a lot of people responded to this weakness by selling the dip.  While it is clearly an overreaction to claim a 1% pullback from all-time highs will lead to the next big selloff, this is actually a healthy response for the uptrend. The more cynical the crowd, the more viable the rally.

The market is still setting up nicely for October sellers to chase prices higher into year-end. Underweight money managers can only wait so long for their predicted pullback before they have to concede defeat and start buying. If they want to keep their job, they cannot look foolish by missing this easy up-trend when end of year statements come out.

Jani