What to expect headed into the holidays

Free After-Hours Analysis: 

The S&P 500 opened Monday morning with solid gains after the U.S. began distributing the first Covid vaccine this weekend. Unfortunately, investor enthusiasm was short-lived and the index skidded into the red by the close.

The Covid vaccine rollout quickly turned into a “buy the rumor, sell the news” event, but this shouldn’t surprise anyone. The U.K. approved the vaccine last week and drug trial headlines have been pointing to this result for months. Any investor that wanted to buy a successful vaccine launch did so weeks ago and very few people were holding out for the confirmation this weekend.

Failing to go up on good news is always a concern because it often signals exhaustion. That said, I’m not overly worried about not rallying on something as obvious and telegraphed as these vaccine headlines. This approval has been coming for a while and to the forward-looking equity market, it already priced this in weeks ago.

Thus far, November’s post-election surge is running out of momentum in December. But at the same time, downside vulnerability seems equally muted with most dips bouncing within hours.

By this point, most investors are content with their existing positions headed into year-end. If they wanted to buy or sell the election or Covid, they made those portfolio adjustments weeks ago. Maybe stocks float a little higher over the next few weeks or maybe they drift back to near-term support. Either way, I’m not expecting anything dramatic or meaningful until the calendar rolls over to 2021.

Sideways chop is one of the most frustrating things to trade. Directional moves are easy to grab ahold of and ride higher or lower with trailing stops. These grinding periods are far more likely to trigger our stops prematurely.

But that’s the way this goes. Sometimes it is easy to make money. Other times we are left twiddling our thumbs. But as long as our gains are larger than our give-backs (and that should have been really easy to do this year), then everything is going according to plan.

I don’t see a lot of potential in either direction and most likely the next great trading opportunity won’t come until after the holidays.

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