Chart Talk {Parabolic}

Today we're posting a chart of the S&P 500 ETF, SPY*.  Chart is from Tradingview.com and you can double-click on this to make it larger if you'd like.  Folks, you're looking at a chart that's gone parabolic in the past week.  The better than 3% move we've seen does not occur all that often.  Short sellers of the S&P 500 have been ripped to shreds.  As always we need to look at the tea leaves and frankly right now they're a bit murkier than normal.

On one hand a move like this sometimes comes towards the end of an advance and could be representative of too much enthusiasm by investors.  In that interpretation we are moving towards a climatic change in market direction.  Under that thinking then we would look for a reversal in the index sooner rather than later.  The fundamentalists would point out that stocks are now expensive after such a move higher and don't support prices at these levels.

A different interpretation would say that the market is discounting a better business environment in the coming Trump Administration and the coming changes will impact corporate earnings to the positive going forward.  They would argue that stocks might even be cheap if earnings improve as much as the optimists think we could see.  To that point I'd note the sort of parabolic move we've seen since the election is the sort of thing often associated with market bottoms.   The problem with that interpretation is that at market bottoms sentiment is usually negative and right now it's pretty good.

I think there's good arguments for both views but markets may be caught up more in seasonal directions than anything else.  There are 15 trading days left in 2016, including today.  Investors with profits are probably looking to hold onto those gains now and will wait to sell into the new year.  Hopes of a more favorable tax treatment in a coming Trump Administration and at the very least desiring to avoid having to pay those taxes for another year should dampen sellers.  Also it is easy to see how money managers might want to keep pouring it on now.  Many are behind the performance eight ball and will be looking to catch up as much as possible.  Remember, the only print Wall Street cares about is the one that shows up at 4:00 PM EST on the last trading day of the year.  That's the number that follows them for the rest of their careers and the number on which they get paid.  

Based on that probability suggests a market that should hold together into 2017 right now.  I'm not saying we won't see any profit taking.  A move higher like this should flush out some folks wanting to lock in these gains.  But you need more sellers than buyers for stocks to have a much more sustained decline and right now there is a higher probability that they have gone hiding.  If that's the case then look for a more consolidating sort of sell off.  That would be shallow and not for more than a few days.  In that scenario stocks stabilize and even potentially move higher into the new year.  Then the debate will be whether or not we've stolen some of next year's advance into the end of 2016.

*Long ETFs related to SPY in client and personal accounts although positions can change at any time without notice or dissemination on any other form of electronic media.