End of Day Analysis:
Today we closed at another all-time high. The unfortunate thing for anyone betting against this market is new highs come in clusters. We set a dozen records over the last few weeks and will most likely continue doing so for some time to come.
Many people have a hard time understanding how this market can keep going up in spite of all the economic and political uncertainty. What they fail to realize is we are going up because of this uncertainty, not in spite of it.
Everyone knows supply and demand drives prices, but few understand what that really means. People only trade stocks when their outlook about the future changes. Something happens that causes them to decide they want more of one thing or less of something else. It is this changing of opinion that translates to buying and selling, and ultimately moving prices. Since October 15th we’ve gone from acute levels fear and panic, to things are not so bad. It is this softening of negative sentiment that propelled us higher.
And this brings up back to our current situation. October was a painful month that not only inflamed fear and anxiety, but it also flushed many individual and institutional investors out of the market. These investors find themselves underweight equities as we continue making new highs. Over the last several weeks, the fear of a market collapse is giving way to fear of being left behind and many of these October sellers are turning into December chasers. The pressure to buy here is especially strong with institutional money managers who will send quarterly and year-end reports to their clients at the end of the month. Expect all this catch-up buying to fuel the Santa Claus rally. But this end-of-year buying is artificially driven by a date on the calendar. We could very easily find ourselves with vacuum of demand starting January first when institutional money managers are no longer under pressure to dress up their books for the quarterly reports.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.