Today’s Dip Could Be The Start Of A Multi-Day Pullback

Commenting on the possibility of a multi-day pullback and today’s trading Gorilla Trades strategist Ken Berman said:

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Q3 2020 hedge fund letters, conferences and more

The Start Of A Multi-Day Pullback

Today’s spike in the Volatility Index (VIX) might mean that today’s dip was the start of a multi-day pullback. The VIX hit its highest level in over two weeks amid the selloff in the tech sector and while the resilience of cyclical issues was promising, an orderly profit-taking event could be ahead in the wake of the historic run-up in stocks.

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The main sectors diverged substantially once again, and while cyclicals and the defensive utilities and healthcare stocks held up well, tech stocks took a nosedive following a relatively stable morning session. The giants of the sector and semiconductor manufacturers were hit hard, pulling the Nasdaq deep into the red, while also weighing on the S&P 500 and the Dow. Facebook (FB -2.3%) was struck by two additional antitrust lawsuits today, questioning the firm’s acquisition of WhatsApp and Instagram, which added to the pressure on the sector.

While the COVID picture remains grim in the U.S., with the number of infections topping 200,000 again in the past 24 hours, little progress has been made towards a stimulus package in Washington today. The issues of unemployment benefits and direct payments are causing the most headaches for lawmakers, and today’s $916 billion proposal from Treasury Secretary Mnuchin failed to trigger a breakthrough. Should the deal be postponed to 2021, small-caps could give back more of their recent stellar gains, and Congress has very little time to pass a bill this year. 

ECB To Hold A Crucial Monetary Meeting

The European Central Bank (ECB) will hold a crucial monetary meeting tomorrow, which could have a profound impact on risk assets and even the Fed’s future policies. The ECB is reportedly planning to adjust its methods of measuring inflation, similarly to what the Fed did this summer, and President Christine Lagarde might also announce a new round of quantitative easing amounting to up to $620 billion according to the latest rumors. The euro hit its lowest level in a week compared to the dollar today and currency markets could be in for a wild ride tomorrow together with Treasuries.

As for the economy, the Consumer Price Index (CPI) and the weekly jobless claims report will be in focus Both the CPI and the core CPI are expected to tick higher by 0.1% following last month’s flat readings, while new jobless claims are forecast to increase slightly after falling surprisingly to 714,000 last week. Besides the ECB meeting, the ongoing Brexit talks and European Economic Summit will also put Europe in the spotlight, so the pre-market session could already see heavy trading on Wall Street. Stay tuned!

Headlines

  • The major indices all finished lower following yesterday broad-based rally, with the Nasdaq suffering the biggest hit
  • Small-caps also finished lower despite the Russell 2000’s morning surge as the two parties are yet to strike a stimulus deal
  • The shares of delivery firm DoorDash (DASH) closed more than 80% above its Initial Public Offering (IPO) price, valuing the firm at well above $50 billion
  • The dollar hit a one-week high against the euro with all eyes on tomorrow’s key European Central Bank (ECB) meeting
  • Chinese pharma giant Sinopharm announced that its COVID vaccine candidate proved 86% effective

Market Wrap

Index G/L Current level Year-to- date 50-day 200-day
Dow -105 30,069 5.5% 28,762 26,266
Nasdaq -244 12,339 37.7% 11,712 10,173
S&P 500 -29 3,673 13.8% 3,506 3,167
Russell 2000 -16 1,902 13.9% 1,682 1,462

Decliners outnumbered advancing issues by a less than 3-to-2 ratio on the NYSE today, with 171 stocks hitting new 52-week highs and 16 stocks hitting new 52-week lows, while volume was slightly above average.

Price Action Gauge ******** (reading for 12/09: 73)

Price action deteriorated today, especially on the Nasdaq, but the bullish short-term trends remain intact, and even in the case of a pullback, the bullish long-term term setup wouldn’t be in danger.

Oversold/Overbought Gauge ******** (reading for 12/09: 18 Color: green)

The major indices are still clearly overbought despite today’s pullback, with the most reliable momentum measures still trending higher and getting closer and closer to the “danger zone” from a short-term perspective.

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