10 Straight Records For The Nasdaq

Stocks Rally Yet Again: Extreme Greed Remains

Large cap stocks obviously increased on the day after Christmas since the stock market has a lot of momentum and it’s a great time of year calendar-wise. The stock market has been overdue for a correction for a couple weeks. But we haven’t expected one to occur in the 2nd half of December because it’s a great time of year. 

As you can see from the chart below, on December 26th, the S&P 500 increases 78% of the time (going back to 1945). That makes it the best day of the year. S&P 500 is now up 29.24% year to date. It’s up 4.74% since December 3rd.

As of December 24th, the 14 day RSI was 74.32. I’m guessing with the rally on Thursday, the RSI got above 75. Stocks are probably more overbought than in November. CNN fear and greed index certainly agrees as it increased 2 points to 93 which is extreme greed. Only category not in extreme greed territory is the VIX which is interesting because it is very low. 

Many would say any reading below 15 is greed and anything below 12 is extreme greed and wouldn’t care about the moving average. Just because the VIX hasn’t dropped recently doesn’t mean the market is in a normal state. VIX is signaling a placid market as it fell 2 basis points to 12.65.

Confusingly, the AAII investor sentiment survey showed the percentage of bulls fell 2.2 points to 41.9% which is only 3.9% above average. Stocks are extremely overbought, but sentiment isn’t euphoric. Similarly, the percentage of bears rose 1.1 to 21.5% which is 9% below average. Percentage of bears is closer to what you’d expect given the strength of this December rally.

Great Day For Nasdaq, Amazon, & Apple

Nasdaq had an amazing day as it was helped by Amazon and Apple which were up 4.45% and 1.98%. Amazon helped the consumer discretionary sector rally 1.43% as it was the best performing sector on Thursday. Both were up because of the great online retail sales growth. The firm announced 5 million people signed up for Prime (paid and free trial) in just 1 week. This rally was the best day for its stock since January 30th

Amazon broke out of its recent range, while Apple has been continually making new highs this year. It’s unstoppable. It’s up 83.58% year to date and 103.89% since January 3rd.  It’s my favorite short idea for 2020.

Nasdaq is up 15% since the close on October 2nd. It has made 10 new highs in a row and is up 11 straight days. As you can see from the table below, when the Nasdaq makes at least 10 new records in a row, it falls 2.6% on average in the next 3 months, but rises 15% in the next year. 

It’s amazing that in the late 1990s boom, there were only 2 such streaks. This market is much different from the 1990s of course. And the tech sector is much more mature as it is driven by highly profitable companies.

This sector isn’t nearly as expensive as it was in the 1990s. However, there has been a lot of multiple expansion this year as the sector has been hurt by the global cyclical slowdown, yet it has the best performance. It's not a bold prediction to say the sector will likely not increase by 48.21% in 2020. 

It has been a wild ride for tech. If Apple underperforms like I expect, the sector won’t do great, but it won’t necessarily have a big decline. It’s worth noting that if Bernie wins the presidency, he might break up the big tech names. Antitrust enforcement will get much tougher.

Democratic Race Update

Because of the Christmas holiday, there have only been 2 national polls since the December 19th debate. We don’t really know who won it. In those polls, Biden was up by 10 and 11 points on Sanders and Warren. His average lead in the polls is 8.9 points. Buttigieg has lost 3.5 points since his peak in late November. The criticism he faced at the debate didn’t seem to hurt him in the latest polls. 

Those polls suggest almost nothing changed in the race. PredictIt shows there is a 37% chance Biden wins and a 23% chance Sanders wins. Pete and Warren are at 13%. Their momentum is done.

The debate having 7 candidates on stage plus the fact that it’s crunch time as voting starts soon caused there to be much more contention. This contention can shake up the race even though it appears that didn’t happen at that one. 

So far, only 5 candidates have made the January 14th debate. Bloomberg meets the polling threshold, but not the number of donations necessary because he’s not accepting them. Yang has 1 of the 4 necessary polls and has enough donations. Steyer has 2 polls and doesn’t have enough donations. I’m predicting only 5 candidates will make the stage, which means the debate will be even more contentious.

2019 Has Been Great

2019 has been an amazing year. It’s possible the S&P 500 will be up over 30%. A lesser known stat is the market has been up 59.3% of the time this year. As you can see from the chart below, that’s above the average of 52.3%. The market been up a higher percentage of the time only 5 other years since 1928. 2019 has even been better than 2017. That year was more about a lack of volatility than stocks being up a lot.

Conclusion

Personally, I think stocks will correct like they always eventually do after they get extremely overbought. The market has avoided such volatility because it usually doesn’t fall in late December. 

Once the calendar changes to January, many see a 5% to 7% correction occurring quickly. Stocks won’t have a great year if they start 2020 overbought. But buying stocks after a correction wouldn’t be a bad idea if it’s large enough. 

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