Well, here we are, just a handful of days before Christmas. I’m getting about the best gift I can imagine: my daughter got home from her two-month trip to Europe this past Friday, and she is going to make the 9-hour drive from New Orleans to St. Marys, Georgia, to spend Christmas with me. I haven’t seen her since graduation last May, and I’m very excited.
It looks like we’ll be having gumbo for Christmas dinner…
The hyper-commercialization of Christmas saps my holiday spirit a little more every year. If it were not for the chance to spend good time with family and friends, I’m sure I would’ve devolved into a grumpy combo of Scrooge and the Grinch, muttering “bah-humbugs” as I punted those insufferable, cheerful little “Whos” across the town square…
So, a big thank you to my daughter!
Of course, that’s all a setup to talk about what this week will bring for stock prices. Last week’s action was surely the work of Scrooge and the Grinch. Maybe this week will give investors a little surprise under the tree?
Let’s dig in…
Friday morning, I wrote:
Today, the 50-day moving average for the S&P 500 sits at 3,861. As I write, S&P 500 futures are trading at 3,859. There is no doubt that the 50-day MA is accounted for in the trading algorithms. The algorithms were targeting the 50-day MA in the pre-market. The question is, what will the algorithms do now?
I will watch for a show of strength at the 50-day moving average. And that’s simply because I expect that the downside story is mostly played out after the selling we've seen. Opportunity should be to the upside. We’ll see…
And at approximately 10:05 Friday morning, the S&P 500 broke below the 50-day Moving Average (MA) at 3,861 without so much as a wink or nod on its way to the day’s lows at 3,827.
Now, if there’s going to be an intraday reversal, 10:30 AM and 2:30 PM ET are the times to watch.
The hour between 9:30 and 10:30 is often called “amateur hour” because that’s when FOMO (fear of missing out) usually comes into play. Maybe it’s some news or an economic report, but when the market puts in a decent move right out of the gate, there will always be a fair amount of investors and traders that can’t wait and jump on the prevailing market direction.
FOMO tends to wear off after an hour or so.
On the other hand, institutional buy and sell orders tend to hit late in the day. And so around 2:30, the market will sometimes tip its hand about what the end of the day's trading will be like.
Market rules are never written in stone. Sure, that would be helpful, but if anything, the market’s job is to make things more difficult. So that’s why we get head fakes, whipsaws, failed breakouts, and breakdowns. As I like to say, history doesn’t repeat, but it does rhyme. And that's when patterns do emerge.
Friday, the selling paused, and there was a little recovery at 10:30 AM. It didn’t hold. But the rally that started right around 2:30 was mostly held. By 3:40, the S&P 500 had rallied a couple of points above its 50-day moving average. With a close at 3,852, the index didn’t finish above the 50-day MA.
But here’s what the chart looks like this morning…
That last red glyph on the right is Friday, and the purple line is the 50-day MA. That gap in the shaded circle was mostly filled by Friday’s action.
Maybe I don’t have as much inner Scrooge and Grinch as I let on, but that looks like a show of strength at the 50-day MA. And it’s got me feeling optimistic. We got red for the holidays last week. How about a little green to round things out this week?
And, for the record, instead of Meta (NASDAQ: META), I bought some Amazon (NASDAQ: AMZN) calls for a trade. The stock could take a shot at $95-$96 this week. I picked up a handful of the 95 strike calls that expire this Friday. Hopefully, it makes for a nice Christmas gift.
That’s your “Morning in the Markets” for today, take care, and I’ll talk to you tomorrow.
The Profit Sector